4 Ways to Protect Your Retirement From Inflation

Dear Rich Lifer,

As the economy creeps back to normalcy, inflation is creeping up along with it… up to a 13-year high to be specific. 

The Federal Reserve still says the inflation is transitory. 

But policymakers have already sped up the timeline for raising interest rates, a sign they see need cool the economic rebound and inflation. 

The question is, will the Fed be able to tame inflation once the cat is out of the bag?

And with the risk that runaway inflation could eat away at retirement savings, what should you do to protect yourself?

Today, we’ll break down some techniques to prepare…

Buy Real Estate 

Investing in real estate during your retirement can provide you with another stream of income and give you more financial protection. 

If stocks or bonds take a hit, you will have cash flow from renting out your properties to fall back on, which will help avoid losses or penalties for having to tap into other retirement assets, such as Social Security. 

Being a property owner also helps provide you with many tax advantages. When you collect rental income, you can write off your mortgage interest, property taxes, and other expenses related to owning rental properties, like maintenance and repairs.

If you don’t want to invest in a physical property, you can also consider a real estate investment trust, or REIT, which is a company that owns, operates, or finances income-generating real estate. REITs allow you to earn dividends from real estate without having to buy, manage, or finance any properties themselves.

Stay Invested

Many retirees forget that they should be continuing to invest their money during their retirement. 

Liz Weston, CFP and author of Deal with Your Debt, states, “You are going to remain an investor throughout your retirement. That money is your longevity insurance.”

There is no absolute guarantee that stocks can always outpace inflation, but you can begin to realign your portfolio to have a diverse mix of investments. Diversity is always a great way to create a safer portfolio and protect it from inflation. 

Make sure you have large-cap, small-cap and international stock indexes, as well as a real estate index and a commodities index in your portfolio. 

You can also consider adding more traditionally “safe stocks,” such as blue chip stocks that have little to no debt, large market capitalization, stable debt-to-equity ratios, and high returns on equity and assets.

Take a look at the S&P 500 Dividend Aristocrats, all of which have increased their dividend payment for at least the past 25 consecutive years.

Other safe investments include bonds and Treasury Inflation Protected Security (TIPS).

Zvi Bodie, a retirement consultant who researched inflation strategies while a professor at Boston University, suggests investing in I Bonds, which earn interest based on combining a fixed rate and an inflation rate.

TIPS are bonds that provide protection from inflation because the principal of a TIPS bond increases with inflation and decreases with deflation, as measured by the Consumer Price Index (CPI). 

Just make sure you are buying actual bonds through brokerage accounts that access U.S. Treasury auctions without a fee. Skip TIPS funds and always opt for the bonds themselves.

Keep Working

This advice might seem counterintuitive for someone who is excited to kick back and relax for their retirement, but if you maintain a job during retirement years, you will be collecting a salary and benefits that rise with inflation.

Working during retirement will also allow you to add more funds to your 401(k) or IRA for additional years. You will be increasing your nest egg rather than depleting it each year to cover expenses. 

This doesn’t mean you have to work a traditional 9 to 5 job during your retirement. You can consider going part-time or doing consulting in your field. 

Carolyn McClanahan, a Certified Financial Planner (CFP) and Retirement Expert, often encourages clients to find an entirely new industry for a retirement job. It’s a great excuse to take a passion and make money. If you love art, get a part-time job in a museum. If you love animals, pick up hours at a local shelter. 

Delay Social Security 

Social Security is a huge part of many people’s retirement funds. In fact, about half of retirees rely on Social Security for more than 50% of their retirement income.

As we noted, we’re seeing a trend of many workers planning to apply early for Social Security, but we advise avoiding this as long as possible. 

Each year that a person delays claiming up to age 70, their monthly Social Security check goes up 7% to 8%. This means that monthly benefits claimed at 70 are at least 76% higher than those claimed at 62. 

Social Security also comes with a built-in cost of living increase based on the published inflation rate. So again, the longer you wait to claim your benefits, the longer you will have that specific hedge against inflation 

Inflation may come and inflation may go, but protecting your wealth for retirement should always be a priority. 

To a Richer Life,

The Rich Life Roadmap Team 


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