Should Inflation Prompt You to Revisit Your Long-term Financial and Estate Plans?

In 2020, COVID-19 shook the world. In 2022, we are still collectively reeling from the impact of the pandemic. As of February, the consumer price index has risen 7.9 percent year over year. From the gas station to the grocery store, Americans are feeling the hit in the wallet everywhere they go. Since there is no way to predict exactly how or when the impact of inflation might slow, it is important to factor it into your retirement plans.

Everyday purchases, travel, and other expenses are likely to continue to rise in price. Inflation decreases the value of your savings and will continue to do so long after you retire. That is why it is so crucial to look at your investment strategy and retirement income plan to see if you will be protected from inflation in the long run.

According to research done by the Senior Citizens League, Social Security benefits have lost more than 30 percent of their purchasing power since 2000. Benefit increases have failed to keep up with the rising cost of food, medicine, and housing. This is in spite of yearly cost-of-living adjustments for Social Security benefits designed to combat the effects of inflation.

Consider what might happen if your retirement income lost 30 percent of its value over the span of two decades. Would such a scenario make it more likely that you might run out of money? How do you know how much income you will need post-retirement? The answers to these questions are complicated – here are a few other considerations to factor into your long-term financial and estate plans:

Finding Sources of Fixed Income

Fixed income sources in retirement will not keep pace with inflation. Think about the amount of interest you will earn in a savings account or CD. Since we are unlikely to see a significant interest rate hike in the next few years, anticipate earning very little in interest. Take a look at your investment strategy and retirement income to see if you will be truly protected against the impact of inflation in the long term.

Sizing Up Your Nest Egg

Do you know how much is in your nest egg right now? Try factoring in inflation over the course of 20, 30, or 40 years. While overall rates of inflation are likely to fall to some degree, prices will inevitably get higher over time. Utilities, food, healthcare, and other long-term costs can eat up a large chunk of your savings, so it is worth investigating how far your current nest egg might last you.

There is not a one-size-fits-all approach to knowing how much you will need in retirement. To maintain your current lifestyle, most experts recommend having 80 percent of your pre-retirement income. For example, if you make $100,000 annually, you should aim to save $80,000. Most people will need over $1 million in retirement savings to ensure they don’t outlive what they have saved.

Re-thinking Investment Strategies

Consider whether your current investment strategy may need to be adjusted when you retire. If you can continue to grow your money in your golden years, you will be able to guard against the impact of inflation. Solid retirement planning makes all the difference when it comes to your purchasing power. Some may opt to take on less investment risk as they are approaching or hitting retirement, but the highest risk allocations can help thwart the impact inflation has on your nest egg.

Control What You Can

There is no denying it: inflation can be discouraging. If you are far out from your retirement date, today’s inflation issues are not likely to impact your savings much. One of the best ways you can protect yourself from inflation’s impact is to invest. Cutting down on spending until you have got more purchasing power is another great strategy.

While it is easy to feel overwhelmed by headlines, it is important to focus on controlling what you can. By taking an active role in your estate plans, you will feel more empowered about retirement. Schedule a chat with one of our team members today to learn how inflation’s impact on your retirement assets may also affect your estate plans.