Current Inflation Risks Retirees Face

By in ,
Current Inflation Risks Retirees Face

How big of a threat does inflation pose on your retirement in 2022? As time passes and the cost of goods and services goes up, your savings and fixed income are losing purchasing power.

Will inflation derail your retirement plan? Inflation is especially troublesome for retirees because many of their primary industries, such as healthcare and long-term care, are experiencing these dramatic increased rates. This poses a problem because many retired individuals are on a fixed income schedule that was carefully planned many years ago.

Since the pandemic, supply chain issues and consumer demand have dramatically pushed up short-term inflation in the U.S.  The Consumer Price Index, a key measure of inflation, was 4.7% in 2021, a level unseen since 1990, according to Statista.  The monthly 12-month inflation rate in February of 2022 was 7.9%, and with the advent of the war in Ukraine, some experts are predicting that U.S. inflation will clock in at 9% or more for 2022.

As a result, inflation rates are causing a bit of a panic among retirees. Many are wondering if these inflated rates will lead them to run out of money part way through retirement. Fortunately, there are several steps that retirees can take to protect themselves from inflation. Here’s a look at some of those inflation risks.

Inflation impacts how much a retiree can withdraw from their portfolio and their lifestyle during retirement. A MetLife poll found that 4,416 U.S. adults were maintaining and increasing contributions to their retirement savings. While this is a good thing in the long term, it’s not the best move in the short term. Since more people were increasing contributions to their retirement, this left them short handed on accounts like emergency savings.

The best way to protect yourself from inflation is by creating a financial plan. When creating your financial strategy it’s important to note there will be changes made to it in the future. This is not something that should be thought of once and then forgotten when you retire. Changing market environments can sometimes mean making difficult choices. 

At CKS Summit Group, we design, build, and manage custom retirement portfolios that are fully capable of simultaneously generating stable growth, increasing income, and preservation of principal throughout a client’s lifetime, with only limited downside market risk. 

Our portfolios are highly customizable and serve a broad range of ages and needs. We believe the right mixture of carefully chosen non-stock market and managed market accounts can create a blended portfolio which is capable of producing increasing income, stable growth, preservation of principal, safety and flexibility all at the same time. Here’s what you should and shouldn’t include in your financial plan:

  • DO: Allocate 50% to Stocks – Historical data proves that stocks will out-earn inflation. However, this process takes a considerable amount of time and typically abides by a year-by-year timeline. 
  • DO: Treasury Inflation-Protected Securities- Also known as, TIPS, are well equipped to handle the harsh effects of inflation. This aspect makes them an easy choice when building a dynamic portfolio, but there are still some reasons to be wary of TIPS. These securities tend to be interest-rate sensitive, which causes rates to rise during times such as these.
  • DONT: Volatile REIT Assets – Real estate is a very common piece in the makeup of most portfolios. These types of assets often generate substantial profits even during times of inflation. These should be used with caution in terms of their interest rate sensitivity. For this reason, their risk may not be worth the reward for a retiree looking for a more stable investment opportunity.
  • DONT: Precious Metals – Precious metals pose the same threats of REIT assets in the fact that they are often very volatile. This volatility is what leads many financial advisors to advise retirees to stray away from selecting precious metals as standalone holdings in their portfolios.

In conclusion, there simply hasn’t been enough serious conversation within the financial planning community regarding changing inflation expectations. Don’t get caught by surprise or complacency when seriously considering an upcoming retirement goal.

When facing such extreme inflation rates, it can be difficult to gather all of these assets together into a balanced portfolio that will provide enough income to last the entire length of an individual’s retirement. Fortunately, the financial advisors at CKS Summit Group can help!

We offer professional services in several areas of financial planning such as: retirement income planning, wealth management, tax efficient strategies, asset protection, legacy planning, and IRA & 401K rollovers.

Schedule your personal strategy session to work with one of our financial planning experts on your plans for retirement today.