Inflation and Retirement Planning: How to Protect Your Savings From Being Eroded Away

inflation and retirement planning
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Inflation, among many factors, significantly drives the cost of living crisis. A striking case is in Utah, where the consumer price index (CPI) rose 6.41% between 2022 and 2023.

In addition to eroding purchasing power in the present, inflation is also a risk to retirement savings. As prices rise, the value of your savings decreases. You may need to withdraw more money from your retirement savings to maintain your standard of living. As a result, you may have little money left in your golden years, which can affect your future living circumstances.

This blog will discuss how to navigate inflation and retirement planning and provide strategies to ensure your hard-earned money retains its value over time.

How Does Inflation Affect Retirement Funds?

The effects of inflation can significantly impact the stability and longevity of your retirement funds in multiple ways. Here are some points you should know.

Fewer savings mean the possibility of a later retirement

When inflation is high, the rising costs of living may eat away your current income. Hence, you’ll have less money for savings and investments. As a result, you’d have to save more money to reach your retirement goals. If you don’t save enough, you may have to delay your retirement or reduce your standard of living to make ends meet.

An increase in the cost of living may stretch your SWR budget

The safe withdrawal rate (SWR) is the percentage of retirement savings you can withdraw each year without running out of money. When inflation is high, your living expenses also rise, forcing you to take out more of your retirement savings each year and causing your funds to run out more quickly.

Erosion of monetary value may keep you from living the lifestyle you want

When inflation erodes your money’s value, you may not be able to afford the same lifestyle you’re used to. Consequently, you may have to cut back on travel and entertainment or downsize your lifestyle and focus on necessities such as food, medicine, and housing.

How to Protect Your Retirement Savings from Inflation? 

Protecting your retirement savings from the erosive effects of inflation demands a multi-faceted approach. Here are five indispensable tips on how to protect your retirement savings from inflation.

Closely monitor inflation rates

Stay informed about current and projected inflation rates to make informed decisions. How inflation will show up and what to do about it are important places for each of our clients to be informed of.  You can check reputable financial news websites for updates on economic trends or government reports on inflation rates, economic indicators, and forecasts.

In addition to understanding how inflation is affiliated to your investment methodology, you also need to understand some of the “do’s and don’ts” surrounding your spending during high inflation periods. To say that another way, it pays to know when it is best to cut back on lifestyle expenses.

Diversify your sources of income

Relying solely on a fixed pension or Social Security benefits may leave you vulnerable to inflation’s impact. As such, diversify your income streams through intelligent investments. 

If you have a knack for creating unique products, consider establishing a small business. You can even take and monetize videos of your craft to earn passive income. 

Keep your lifestyle in check

While it’s tempting to splurge during retirement, maintaining a prudent lifestyle can significantly contribute to safeguarding your savings. Overextending your spending habits can deplete your funds faster, particularly in the face of inflation. Being mindful of your expenses ensures that your retirement funds last longer.

Utilize tax-advantaged savings accounts

Leveraging tax-advantaged accounts like Individual Retirement Accounts (IRAs) and 401(k)s can offer a double advantage. They provide a structured means of saving for retirement and shield your investments from certain tax implications, preserving more of your earnings in the long run.

Talk to a reputable financial advisor

Retirement planning can be a daunting task in itself. Add inflation to the equation, and the challenge becomes more difficult to solve on your own. As such, seek guidance from a trusted financial advisor specializing in retirement planning. They can tailor a financing strategy that aligns with your retirement goals, risk tolerance, and the realities of inflation. 

An advisor can also offer insights into investment options, withdrawal strategies, and adjustments needed to counter the impact of rising living costs.

Here are some questions you can ask your financial advisor:

  • What strategies can mitigate inflation risk?
  • Can you explain the role of diversification?
  • What is your approach to retirement income planning?
  • When can I withdraw my Social Security and retirement account savings?
  • Which account types should I draw from, first?
  • How can I save better for retirement?
  • What are stretch benefits and what strategies can be deployed for me in that category?
  • What can be done to help me take advantage of rising inflation?

Be Financially Secure in Retirement

Retirement is your chance to hang up your hat and enjoy your golden years. However, you need sufficient funds to achieve the lifestyle you want. With inflation bringing economic uncertainties, following the tips above can help secure you financially, for the future.

To ensure your finances are in good hands, consider working with our professional wealth coach from Tencap Wealth Coaching. Aside from offering retirement planning services, we can guide you through investment and estate planning, tax strategy, Social Security benefits, and customized 401(k) plans to ensure a comfortable and financially secure retirement. The proper financial advisor, helping you in wise areas of your life should make a significant impact on your financial life and wellbeing.

Contact us to learn more about protecting your retirement savings from inflation. We offer a no-cost meeting where we can showcase some of our specific observations for your immediate situation.

Photo of Nick Carrigan
Nick Carrigan
Wealth Advisor | + posts

Nick trains and develops families in creating, maintaining, and growing wealth. This includes educating clients on the science and academics of investing, comprehensive financial planning, and ongoing coaching to ensure discipline for a lifetime. Nick has seen this create incredible levels of freedom, fulfillment, and love for the families he works with.

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