Will Inflation Jeopardize my Retirement Income?

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Inflation can threaten retirement if no action is taken.

The health of the economy impacts people all across the United States.

It influences job security, standard of living, and retirement planning.

In the past year, the consumer price index rose by 5.4 percent.

According to a recent Kiplinger article titled “How Big of a Threat Does Inflation Pose to Your Retirement?, this figure is higher than typical with the Federal reserve target inflation rate being 2 percent.

Inflation can quickly diminish your retirement savings.
Buying power in retirement will be impacted by inflation.

Unfortunately, it will likely be a higher rate than this for awhile.


How will inflation impact retirement savings in particular?

Consider how a 3 percent annual inflation will impact finances 20 years in the future.

Let us estimate you will need $60,000 the first year you retire.

In 20 years, your annual income need will be $108,000 to match the purchasing power of this year.

This also translates to your $60,000 being worth the equivalent of $33,000 in the future.

What does this mean?

Inflation cannot be ignored in retirement planning because it makes your savings worth less.

Evaluating your investment strategy to protect against this in the long-term is important.

According to the Senior Citizens League, the average Social Security benefit holds only two-thirds of its buying power since 2000, because it has failed to keep up with cost-of-living adjustments.

What can you do to help protect yourself against inflation?

Review fixed-Income Sources.

Consider how fixed-income sources may not match inflation.

This is common with funds in a savings account or Certificate of Deposit.

If they are earning little interest now, they will likely continue to earn little interest in the future.

Look at Your Nest Egg.

How much do you currently have saved for retirement?

Calculate inflation over the next one to three decades.

Although the inflation rate may fall beyond its current index, the costs of food, utilities, health care, and long-term care costs are unlikely to decrease.

Determine How Your Strategy May Need to Change.

After having reviewed your current savings and your fixed-income, review your investment strategy.

It may require a plan to increase risk now and decreased risk when nearing retirement.

Working with an experienced financial advisor can help you protect your retirement savings from the ravaging effects of inflation.

Reference: Kiplinger (Oct. 3, 2021) “How Big of a Threat Does Inflation Pose to Your Retirement?

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