3 Ways Inflation Can Impact Retirement Savings… And What You Can Do About It

Inflation is an important financial factor that we all must contend with when planning for retirement. While inflation might seem like an abstract concept, it can have a real and tangible impact on one’s retirement savings. This article explores three ways inflation could impact retirement savings and offers practical strategies to mitigate these effects.

Inflation risk #1 – Purchasing power erodes

The most immediate impact of inflation on retirement savings is that it erodes one’s purchasing power. Over time, inflation reduces the value of money, meaning the dollar today will buy less in the future than it does now.

Strategies to help mitigate this risk:

• Explore inflation-adjusted annuities — Certain annuities offer optional inflation riders (available at an additional cost) designed to adjust payout amounts or interest crediting based on changes in inflation indexes. *Guarantees are backed solely by the claims-paying ability of the issuing insurance company.
• Diversify the investment portfolio — Investing in a mix of assets, especially those that tend to do well during inflationary periods, can help protect one’s purchasing power.

Inflation risk #2 – Living expenses increase

Inflation affects the cost of living, which directly impacts those living on a fixed income. As prices rise, everyday expenses such as groceries, healthcare, and housing could become significantly more expensive. Retirement savings may not go as far as planned.

Strategies to help mitigate this risk:

• Consider growth-oriented strategies — Historically, equities and mutual funds have offered long-term growth potential that may help offset inflation. However, investing in stocks involves market risk, including the possible loss of principal.
• Consider a graduated withdrawal strategy — By adjusting the amount withdrawn from retirement funds each year based on inflation and other factors, one can better manage spending in retirement.

Inflation risk #3- Retirement income is impacted

If one’s retirement income sources aren’t adjusted for inflation, it may not cover living costs. Since retirement can last several decades, even low inflation rates can significantly impact your retirement finances.

Strategies to help mitigate this risk:

• Inflation-protected annuities — Annuities offer an inflation rider, available at an extra cost, where payments adjust to keep pace with inflation.
• Consider a part-time job or side business — If you’re healthy and able, working in retirement can provide more income to help keep up with rising costs.

By understanding how inflation affects retirement savings and employing smart strategies, one can mitigate its impact. In order to work toward an independent retirement. The key is to plan for inflation, so it doesn’t derail your retirement plans.

Remember, it’s always a good idea to speak with a financial professional when making critical decisions about your retirement plan. They can help tailor a plan to your specific needs and circumstances so you can navigate inflation and other financial challenges with ease.

SWG5777521-0726 This information is provided as general information and is not intended to be specific financial guidance. Before you make any decisions regarding your personal financial situation, you should consult a financial or tax professional to discuss your individual circumstances and objectives. An annuity is intended to be a long-term, tax-deferred retirement vehicle. Earnings are taxable as ordinary income when distributed, and if withdrawn before age 59½, may be subject to a 10% federal tax penalty. If the annuity will fund an IRA or other tax qualified plan, the tax deferral feature offers no additional value. Qualified distributions from a Roth IRA are generally excluded from gross income, but taxes and penalties may apply to non-qualified distributions. Consult a tax advisor for specific information. Optional riders are generally available at an additional cost. The source(s) used to prepare this material is/are believed to be true, accurate and reliable, but is/are not guaranteed.