MARKETREALIST.COM / NEWS

Rising Inflation may be Eating Away at Your Retirement Funds; Here are Ways to Safeguard Them

Inflation's long-term impact on finances is often overlooked by most Americans, but it's affectiong you and slowly depleting you of your savings. We discuss 4 ways how you can not just gain back the hold of your money but also grow it.

BY VALLARI VAIDYA

UPDATED FEB 19, 2024

Most Americans hardly notice the impact of inflation in their day-to-day lives and many treat it as a short-term phenomenon. Hike in prices are easy to ignore during our daily tasks like grocery shopping or filling gas! However, it's essential to recognize that inflation also plays a crucial role in long-term budgeting, as it affects the costs of goods and services in the future.

With rising prices, people with fixed incomes may face challenges in maintaining their lifestyle. This is particularly concerning for those with insufficient savings to cope with rising expenses after retirement, as their actions now can significantly impact their future quality of life.

Here are 4 tips that can help you secure your post-retirement life.

Assess inflow and outflow

To plan for retirement, it's crucial to analyze your financial needs in the future. Consider factors such as anticipated expenses, health status, life expectancy, family responsibilities, outstanding debts, and desired lifestyle post-retirement. This assessment will provide a clear understanding of the required investment amount, and help you save money and make smart investments with a clear roadmap in mind.

Retain exposure to equities

Despite inflation's potential impact on equities, they have historically served as a hedge in the long run. Including equities in your retirement portfolio can offer returns that are higher than the costs caused by inflation. Consider various equity options like stocks, mutual funds, ETFs, and index funds among others, according to your risk tolerance and personal preferences.

Achieve portfolio diversification

To determine the nominal targeted returns, consider inflation and your risk profile. Conservative profiles may aim for a 1%-2% real rate of return, while the more aggressive ones may target real returns above 3%. Allocate your investments across diverse asset classes like stocks, bonds, real estate, and commodities, since diversification spreads risk and helps achieve desired returns. In addition to that, focus on equity-heavy investments during the early years of investing and gradually shift towards fixed-income instruments as retirement approaches. Consider inflation-index bonds, which specifically combat inflation's impact and offer favorable returns. Utilize these tools for portfolio diversification.

Regularly review and adjust investments

Inflation fluctuates over time and hence impacts investments differently. This is why it is crucial to periodically review your investment portfolio and make necessary adjustments based on economic conditions and retirement goals. Consulting a financial advisor is prudent, as they can offer tailored guidance according to your specific circumstances. In order to safeguard your retirement funds, it is crucial to understand the effects of inflation and implement the appropriate strategies. By taking a proactive approach and seeking professional advice, you can ensure that your retirement goals stay on track.