The worry for retirees is that high inflation erodes purchasing power and increases the likelihood that portfolios cannot support their spending needs.
While higher prices do affect everyone, some people will be harder hit than others – depending on where they spend their money or if they have extra money to spare.
The fact is “inflation” is a government statistic. What you actually spend your money on is much more personal. And while we don’t like to see prices at the pump increase, it doesn’t mean that we are victims with no agency.
Here’s some choices and good news regarding inflation:
- Social Security is indexed for inflation
- I-Bonds are a great place to stash extra cash to keep pace with inflation (currently paying 9.62%)
- Higher inflation means your fixed rate debt (like a mortgage) will be less of your monthly budget
- We have the ability to substitute goods – maybe we skip the first-class seats and travel in premium (this choice alone might offset a years’ worth of higher utility bills)
- If you own a home or REITs, those have dramatically benefitted from rising prices
Furthermore, the best long-term solution to higher inflation is to stay invested in the stock market. Prices rose 7% for the year in 2021. The US equity market has been up 10% annually for the past five years ending in May.
This doesn’t mean that stocks beat inflation every year or even during periods of high inflation, but over the course of multiple years, you’re way better off keeping that money in the markets.
After all, there’s only one guaranteed way to lose money to inflation – don’t invest your savings at all.
And lastly, this shouldn’t come as a surprise to you (but just in case), we planned for inflation for all of our clients. Every retirement projection is built around costs increasing over time. We’re not shocked by price increases. We’ll continue to adapt our lifestyles and stick with our long-term plan.
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