While You’re Younger
When you’re younger, you should have an emergency fund set aside for 3 to 6 months worth of expenses to hold you over in the case of lost income or an unexpected expense. You should also have additional savings set aside for planned expenses, such as purchasing a home or a new car. While having money in savings accounts feels secure, these funds are more likely to be taken advantage of by inflation. While consumer prices increase, interest rates on savings accounts are not increasing at the same rate.
The majority of your retirement portfolio should be invested into stocks while you’re under the age of 50. This will help you fight against inflation and help your funds grow.
Getting Closer To Retirement
Once you are a decade away from retiring, you should begin moving some of your retirement assets into fixed income to protect you against the stock market. The last thing you want is to be a year away from retirement and have the stock market tank your retirement funds.
One form of fixed income can be inflation-protected securities provided by the U.S. Treasury, known as TIPS. TIPS are backed by the U.S. government and offer protection from inflation since the amount of principal changes with the inflation rate.
You can also look into commodities since they can sustain against inflation. If you want to diversify equities, you can add natural resources and energy stocks to protect against inflation.
Real estate is another asset that can help you keep pace with inflation. You don’t need to purchase a rental property to benefit from real estate; you can invest in Real Estate Investment Trusts (REITs).
Once you’re in your 60s, you need to think about what your income in retirement will be. Social Security is an inflation-adjusted benefit that receives a cost of living adjustment each year.
Once You’re In Your Golden Years
Now that you are living out your retirement years, you will be withdrawing from your retirement accounts for income. At this point, you should have about 20% of your bond portfolio in TIPS. These are inflation resistant to protect your retirement funds. While you need income now, you will also need to consider needing income down the line.
You shouldn’t withdraw everything from your retirement savings into liquid cash, but instead keep it invested except for the normal withdrawals you need to sustain yourself. While your savings in stocks may not outpace inflation, they still keep your money safe if you’re invested in safer stocks. Be sure to keep your stock portfolio diversified so your funds do not deplete based on one industry’s market value.
If you’re not sure where to start with protecting your retirement savings from inflation, our advisors are happy to assist! We can evaluate your investment portfolio and recommend the best options for you. Give us a call today to get started!
Sources:
https://www.kiplinger.com/personal-finance/604385/ways-to-help-protect-your-retirement-against-inflation-with-a-plan-built-to
https://wealthfit.com/articles/protect-retirement-from-inflation
https://www.cnbc.com/2021/09/29/how-to-protect-your-retirement-portfolio-against-inflation.html