What is Your Strategy For Inflation Risk in Retirement?

Today’s retirees face an unprecedented level of financial risks. People are living longer than ever, stretching the amount of time that one’s retirement savings must last. Health care and long-term care costs continue to rise, placing added financial pressure on older Americans. Volatility in the investment markets can threaten your financial stability in retirement.

There’s one other financial risk that you may not have considered. It’s inflation, which is the incremental increase in the price of goods and services from year to year. Inflation is caused by a wide range of factors, including interest rates, economic growth and much more.

In most years, inflation is modest, increasing by only a few percentage points. However, even a modest level of inflation can have a big impact over a long period of time. For example, assume that the average level of inflation is 3 percent throughout your retirement. If your retirement lasts at least 24 years, average annual inflation of 3 percent would lead to a doubling of prices throughout the course of your retirement.

How well would your savings hold up if your expenses doubled throughout your retirement? If you don’t know the answer to that question, now may be the right time to develop an inflation protection strategy. Below are a few action items you can implement to minimize the impact inflation has on your retirement:

Delay your Social Security benefits.

It might be tempting to file for Social Security as soon as you become eligible at age 62. However, there is good reason to delay your filing. If you file before your full retirement age, your annual benefit will be permanently reduced, perhaps as much as 30 percent.1

You can avoid that reduction by delaying your filing to your full retirement age. Most people reach their full retirement age at some point between their 66th and 67th birthdays.

You may even want to delay filing past your full retirement age. You can delay your filing all the way to age 70, and by doing so, you will receive an increase in your monthly benefit. Social Security offers an 8 percent benefit credit for every year past your full retirement age that you delay filing.2

For example, if your full retirement age is 66 and you file at 70, you would get a 32 percent increase in your benefits, or 8 percent for each year that you delayed. That extra income could be helpful in the later years of retirement, after inflation has increased the cost of goods and services.

Don’t be too conservative in your investment strategy.

It’s understandable if you want to err on the side of being conservative in retirement. Many retirees choose to minimize risk as much as possible in their investment strategies. After all, you may be dependent on distributions from your savings to fund your lifestyle. If you suffer an investment loss, you may not be able to withdraw as much money as you need to live comfortably.

You will also need some level of growth, however, so your distributions can increase from year to year. That will help you keep up with the rising cost of goods and services. Often, growth and risk go hand in hand. If you eliminate risk from your investment strategy, you may also be eliminating potential for growth.

A financial professional can help you find a balance between risk management and growth potential. They may also recommend tools that can give you growth opportunities and also minimize downside risk. For example, there are a number of annuities with features designed to achieve those objectives.

Withdraw less than you need.

Perhaps the best weapon against inflation is self-discipline. Just because you can withdraw a certain amount of money each year from your savings doesn’t mean you should. By withdrawing less than you need, you leave some assets in your investment accounts to continue growing and compounding.

Look for ways to cut costs so you can minimize the amount of money you pull from your retirement savings each year. You could scale back on travel, shopping and other discretionary spending. You might even look into downsizing to a smaller home. Be creative in your spending choices so you can give your savings a chance to grow.

Ready to develop your inflation protection strategy? Let’s talk about it. Contact us at Bridgeriver Advisors today. We can help you analyze your needs and create a plan. Let’s connect soon and start the conversation.



Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.

16530 - 2017/3/22

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