Inflation is a scary topic, especially for those nearing or in retirement. If you fall within this category, there are a few things you can do to combat inflation and stretch your dollars throughout retirement. But before we get into that, let’s look at how inflation affects your spending power in retirement. Let’s say at retirement you have $100,000 saved. If you planned to spend $6,000 annually from your savings, your money would last roughly 18 years*; assuming 3% inflation throughout your retirement. However, if inflation rose to 10% and remained there throughout retirement, your money would run out in approximately 11 1/2 years*. Inflation, which is the ongoing rise in the cost of goods and services, can drastically eat away at your savings and cut down your purchasing power year after year. So, what can you do to hedge against inflation? • For starters, don’t panic. Inflation happens, in fact, if we look back over time it averages around roughly 3% every single year. Unfortunately, we are seeing a 40-year high inflation rate and experts are unsure how long it will last. • Next, you may need to revisit your investment or spend-down strategy. This might involve investing in something that’s a little more aggressive versus keeping your money in a simple savings account or it may be that you simply withdraw your money differently to help it last longer. I highly recommend attending a Retirement Income Spend-Down Strategies presentation soon to learn more about the different withdrawal strategies. • It’s very important that you make smart spending decisions from the get-go. A common mistake retirees make early in retirement is making big purchases with their savings. A house, a boat, a new car, etcetera… Your savings and fixed income will only go so far. Have a long-term budget and know what you can and can’t afford before making big purchases. And as always, save when you can. • Lastly, be flexible. If we see high inflation rates, which we currently are, and prices of consumer goods soar, you may have to pick up a part-time gig to make ends meet, down-size your home to cut back on utilities and taxes or skip out on a vacation. It’s not ideal, but we must do what we can to make ends meet. If you need help planning for retirement or if you’re already in retirement and have questions about spending down your retirement savings, reach out to a deferred comp financial education professional. Our team does not work on a commission and is solely here to help you make informed decisions regarding your money. *Assumes 4% return on investment in retirement.
