Select Page

Adjusting Retirement Plans for Inflation

Retirees have seen the purchasing power of their retirement income fall, while working Americans will now need to save and invest for a higher retirement income goal to ensure the same desired retirement standard of living. This erosion of purchasing power may continue for at least the next couple of years, lending urgency to the task of revisiting and potentially revising individuals’ personal retirement plans.

To view the full article please register below:

    First Name (required)

    Last Name (required)

    Your Email (required)

    Adjusting Retirement Plans for Inflation

    Adjusting Retirement Plans for Inflation

    At the roughly 7.5% inflation rate since the start of 2022, retirees have seen the purchasing power of their $100,000 retirement income fall to $92,500, while working Americans will now need to save and invest for a higher retirement income goal, e.g., a $100,000 retirement income goal prior to 2022 will now need to be $107,500 to ensure the same desired retirement standard of living.

    It gets worse. This erosion of purchasing power may continue for at least the next couple of years, lending urgency to the task of revisiting and potentially revising individuals’ personal retirement plans.

    How Inflation Affects Retirement Plans

    Inflation’s primary impact is the loss of purchasing power, as described above. However, there are other important consequences.

    For retirees, it requires a choice between two undesirable outcomes: reduce spending or increase withdrawals to fund higher spending, which may risk depleting retirement assets sooner than anticipated.

    For non-retirees, it means having to save more to fund a retirement that now requires a bigger nest egg at the precise time higher, everyday living costs decrease the discretionary income that can be directed to retirement savings.

    Six Action Steps to Take Now

    There are six steps individuals can take to make sure inflation doesn’t undermine their retirement security.

    1. Review your current budget. Retirees should look for ways to reduce expenses or delay discretionary spending.
    2. Undertake a retirement plan review. Recalibrate your income goals to reflect inflation. Then determine if your current spending (for retirees) or your annual savings amount (for non-retirees) can be met with current savings and investment strategies. Calculate how this higher income goal impacts future retirement asset balances.
    3. Conduct a portfolio review. For instance, does your portfolio hold a sufficient allocation of inflation-beating assets, such as stocks, real estate, TIPS and floating-rate bonds.
    4. Be smart about when to commence Social Security. Social Security benefits are not only adjusted for inflation, but the longer you wait to begin taking benefits (up to age 70), bonus benefits will accrue.
    5. Delay retirement, or transition to part-time or freelance work. The added income will help meet higher costs and make your retirement savings last longer.
    6. Regularly review your retirement plan, as inflation puts a constant upward pressure on spending requirements.

    Few economic events are as destructive to financial security as inflation, which is why it’s important you sit down today with your financial professional to make sure your retirement plan reflects this new inflation reality.

    Please reference disclosures: https://blog-dev.americanportfolios.com/disclosures/

    About The Author

     

    Director of Practice Management 
    631.439.4600, ext. 212 

    Subscribe

      Subscribe to receive a monthly recap of our three most popular posts.

      Recent Videos

      Loading...

      AP Awards 2021