Protect Your Retirement
A secure and comfortable retirement is what most people want as they age, and inflation has become a significant problem. Did you hear the news on Friday? If you’re reading this a little late, that was Feb 24th. Unfortunately, the numbers show that inflation is headed back up.
Inflation is a significant risk to everyone, especially for people who are retired or retiring soon. Inflation is like a direct tax on retirement. Since the cost of everyday living is going up, your money is worth less. That also means that you are going to need more money to retire. In turn, you’ll have to save more money to keep the same standard of living in retirement.
I’m not retired yet, although I see what is happening to retired clients. They worry about the reality of running out of money or having to reduce their spending significantly. But, of course, the 800-pound gorilla in the room is the investment markets. Many worry if it is worth the risk to put money in the stock market.
Don’t believe everything!
Many government officials appear to be going through their day with rose-colored glasses. Some costs may be decreasing. But just as “people do not live by bread alone,” people do need food and shelter to survive. And those costs are rising. It is hard to believe anything the talking heads in the federal government say about the economy. Especially when we see things like $8 for a dozen eggs. In this case, that’s about a 60% increase in a year.
Overall, food costs are up over 11% from last year. I am sure you have your list of things that have increased in price. No one can get away from inflation. But there are some things you can do to lessen its effect on your life. That’s what I am writing about for you today.
Probability-based alternatives involve some risk, and you should ensure you understand and accept the risk before using these strategies. Important to note, the information I am providing here is not a recommendation to buy these securities. I am writing about them only to make you aware of them. With that said, here are two probability-based alternatives:
- Inflation-protected securities: Inflation-protected securities like TIPS (Treasury Inflation-Protected Securities) or I Bonds (U.S. Savings Bonds) offer protection against inflation. FYI, when you do your taxes this year, check out the option to have any refund you may have to be directed to I Bonds. Usually, you can only invest $10,000 per person. But funneling your refund to I-Bonds is a way to increase your savings. The design of these securities is to keep pace with inflation. However, even though the U.S. government does issue both of these securities, they do react to interest rates differently. TIPS (Treasury Inflation-Protected Securities) WILL lose value when interest rates rise. On the other hand, I Bonds can only have a portion of the interest forfeited if you cash out early.
- · Diversify your investment portfolio: Retirees can diversify their investment portfolio to include a mix of assets like stocks, bonds, and real estate to help combat inflation. Inflation does not affect all assets in the say way. While this may be true, be careful not to buy into the hype that some sellers of these types of securities push. For example, if you watch a commercial with a famous old guy pushing gold, he does not know your financial situation. Remember, he’s getting money to promote the company’s products.
Safety First Alternatives
On the positive side, a safety first alternative can be used by anyone who wants better to manage the effects of inflation in their retirement.
- Consider a part-time job or freelance work: Retirees can consider taking on a part-time job or freelance work to supplement their retirement income. Even temporary work can help retirees stay ahead of inflation and maintain their standard of living.
- Consider delaying Social Security benefits: Retirees can consider delaying their Social Security benefits, which can increase their monthly benefit amount by up to 8% per year until age 70. Plus, it’s a way to increase income with no investment risk. So delaying benefits can help combat inflation. Delaying benefits is also a strategy that can reduce the income taxes a retiree pays on their Social Security Retirement Income.
- Manage expenses: Retirees can reduce their expenses by better managing where they are spending their money. By lowering costs, retirees can maintain their standard of living even when prices rise.
Worrisome Retirement News
Sadly, a survey done by Debt.com showed that only 1 in 10 people planning for retirement used a budget to help them retire. However, an overwhelming majority of the people surveyed said that having a budget helped them get out of debt and, better yet, stay out of debt.
To help you better manage your expenses, I have created The Easiest Retirement Budget Worksheet with a user guide to help you retire wisely. With this tool, you can learn how to create a secure and comfortable retirement. You can download your copy here:
As always, to end today, remember that this information is for educational purposes only. This information is not investment, accounting, or tax advice. For those things, you need to find yourself a good fiduciary advisor. 😉
Have a great week,
PS, here are some other great topics from my blog that may interest you.