Inflation and Retirement: How to Protect Your Savings – Community News
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Inflation and Retirement: How to Protect Your Savings

“We have not invested all of Mom’s money in this product,” said Ms. Cheng. “We only invested a portion of her IRA and her legacy IRA. We did this to address market risk, inflation risk and longevity.” (These additional contracts are often expensive, and additional features increase the cost of an annuity contract. The living driver added 1.35 percent to the contract purchase cost for Ms. Cheng’s mother.)

Savings and investments. You know this, but it’s worth repeating. Another solid way to increase early retirement savings is by investing in low-cost, no-commission diversified mutual funds. Use a cost analyzer to see how much you can save.

“Put as much as you can” in a combination of 401(k)s, Roth IRAs and HSAs, Ms Braun-Bostich said. Ensure your retirement portfolio is diversified and protected with Treasury Inflation-Protected Securities (known as TIPS), short-term bonds, floating rate securities, and US and international equities. And if you already have such a portfolio, monitor your progress annually.

“This is not a one-time thing,” said Ms. Braun-Bostich.

With inflation, appearances can be deceiving, as single-digit increases don’t seem so steep in the short term. Although consumer prices fell during the first wave of the pandemic, they escalated when businesses reopened this year, causing widespread supply chain problems and many people returning to work.

Excluding volatile food and energy costs, the consumer price index rose 4.6 percent in October from a year earlier, the highest increase since 1990. That compares to an average of about 3 percent between 1913 and 2020, with notable increases in the 1970s (average of 7.25 percent) and the 1980s (5.82 percent).

However you look at inflation, you’ll have to absorb the cost of living and unforeseen financial shocks from early retirement, such as job loss, divorce and out-of-pocket medical expenses, which certainly make retirement planning even more challenging. A study by the National Endowment for Financial Education found that 96 percent of Americans had experienced four or more such “income shocks” by the time they reached age 70.

How do you avoid the triple threat of inflation, income shocks and the failure of your nest? Working with a fiduciary, certified financial planner who can diversify your retirement portfolio with low-cost index funds is a start, Ms Johnson said. Such a planner charges you a fixed amount or hourly rate based on how much work you need. Do not work with financial advisors, brokers or agents who charge commissions.

It turns out that taking every step gives a sense of empowerment. “When you’re young, start planning,” Eileen Cheng said. “You can take out a loan for everything, except for your pension.”