4 ways to protect your retirement against 9.1% inflation | Personal finance
(Sam Swenson, CFA, CPA)
In a summer marked by economic uncertainty, those on the verge of retirement are feeling the heat the most. The inflation data – most recently coming in at 9.1% – is staggering. Combine this reality with overseas conflicts and rising interest rates, and you have an overall scenario that does not bode well for aspiring retirees.
Here, we’ll review four ways to protect your retirement in an abnormally high inflation environment.
1. Add I-bonds to the mix
Series I Savings Bonds, offered electronically by the US government, currently pay interest at an annual rate of 9.62%. These bonds represent loans to the US government with an interest rate indexed to current levels of inflation. If you choose to buy, you will need to own for at least one year and you will be subject to a maximum purchase limit of $10,000.
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There are ways to get creative around I-bonds, even if $10,000 isn’t a significant part of your investment portfolio. For example, the $10,000 limit applies per person, which means that if you are married, your spouse can also buy I-bonds. Or, if you happen to have created a revocable trust, the trust is also considered a person in this context and can also buy bonds.
2. Deadline for filing for social security
Social Security is one of the few ways to access an inflation-adjusted income without having to do anything but wait. While waiting for full retirement age (“FRA”) to claim benefits, you will get a life annuity proportional to the amount of payroll tax you have contributed to the system during your working career.
For each year you delay your application beyond FRA, you will receive an annual increase of 8% in addition to any cost-of-living adjustments en route, until age 70. In other words, by delaying your claim for benefits, you will receive After only your proportional share of the benefits, and you will receive them with inflation protection for the rest of your life.
3. Keep working
It depends on health and perhaps easier said than done, but working up to and through your early retirement years can ease the stress on your finances. Even part-time work, where you earn $10,000 or $20,000, can go a long way to protecting your nest egg. Reducing the need to withdraw from your portfolio is absolutely essential in the face of economic headwinds.
The non-financial aspects of work also matter a lot in this context. If you have an undesirable work environment or long commutes, carrying on may seem overwhelming. But if you’re able to find work that you find meaningful or easily tolerable (remote work might do the trick here), it can make sense on many levels to maintain some sort of active income.
Staying engaged is undoubtedly key to overall retirement success, and work can be a big part of that, both financially and non-financially.
4. Re-engage diversification
Given the prolonged bull market of the 2010s, many people simply settled for portfolios made up entirely of stocks. In retrospect, shareholders have done much better than bondholders during the last bull run, with consistently competitive equity returns and interest rates at generationally low levels. The next decade could be very different, which means the need for portfolio diversification should be a priority.
Globally diversified portfolios of stocks, bonds and real estate are well positioned to weather most economic environments; the key is not to overcommit to one asset class. In the midst of the economic turmoil, spreading your eggs among different baskets is simply a smart investment necessity.
Control the variables you can control
While there’s not much the average pre-retiree or retiree can do to change monetary policy, there are things they can do to make things more manageable in retirement. Leaning into I-bonds, delaying Social Security, working into retirement, and re-engaging in global diversification are some of these strategies.
In general, remember that you can only control what you can control, and let the process happen as it should. Sticking to a set methodology when it comes to managing your investments is essential in this effort.
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