Inflation Causes Risks to Your Retirement Income

David Treece, MBA, AIF®, CLTC® |

Many people notice the effects of inflation on their grocery bill or at the gas station when a full tank costs more than they remember. But inflation affects other areas of your finances, including your long-term financial goals like retirement income.

One of the main reasons why our team is always mindful of inflation is that it can have a big impact on your financial picture.

Rest assured; we’ve been planning with inflation in mind. Here’s why:

Social Security as an Income Source

A majority of retirees depend on Social Security, at least in part, for their retirement income. While Social Security benefits are evaluated against price indexes every year, there is some evidence that the cost-of-living adjustments to Social Security benefits have been inadequate. Even though Social Security benefits are regularly evaluated, inflation may still outpace them, so we plan accordingly.

Pensions as an Income Source

If you have a pension plan, it’s likely tied to your last salary rates, so your benefits may be based on a salary that does not reflect the current market rate. Also, while pension plans sponsored by state or local governments provide some cost-of-living adjustments, private pension plans often do not. It’s likely that your pension plan is based on outdated numbers that don’t take inflation into account. We consider that in your retirement budgeting.

Prior Savings as an Income Source

As inflation decreases the worth of a dollar, you may be at risk for the worth of your non-yield-producing assets to decrease as well. Due to inflation, the funds you have saved may not be worth as much as they once were. Making a retirement budget is essential to mitigating the negative impacts of inflation.

What You Can Do to Curb Inflation’s Impact

Unfortunately, no one can individually impact the inflation rate, but there are actions you can take that may help minimize the impact it has on your retirement income. Many people consider these options when looking for ways to decrease inflation’s impact:

Reducing housing costs
Diversifying income streams
Adding correlated investments to their portfolios

Inflation doesn’t mean the end of a comfortable retirement for those who’ve planned. It’s like any other major life stage transition we’ve helped clients make; it may take some adjustment. Even if your financial plan isn’t quite what you had in mind, we’ve planned for ups and downs and there’s confidence in that.

As always, contact our office if you’d like to talk about specific ways you can curb inflation's impact on your retirement savings.