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Retire Wise | 4 Things You Can Do About Rising Inflation

Retire Wise | 4 Things You Can Do About Rising Inflation

| August 03, 2021
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4 Things You Can Do About Rising Inflation

In June, the Consumer Price Index, which measures the change in the prices of a broad range of goods and services over time, rose 5.4% from a year earlier, marking the sharpest increase in inflation since 2008.Whether prices are rising at the gas pump or grocery store, inflation decreases your purchasing power, meaning you pay more money for the same things. While experts debate whether recent increases are a signal that we’re entering a period of sustained higher prices—or if inflation will be temporary—there are ways to help manage the impact on your purchasing power.

Why it’s different this time

It’s important to note that the price hikes we’re seeing now are different from those seen at the beginning of the pandemic, which were largely due to shortages and panic buying. In fact, a rise in inflation was expected this year as the economy picked up steam, business restrictions eased, and consumer demand surged. While ongoing supply chain disruptions and pent-up consumer demand may continue to drive prices upward in the coming months, the Federal Reserve (the Fed), which sets U.S. monetary policy, expects steep rises to be transitory and inflation to remain within its 2% target over the long term, into 2022 and 2023.2 However, there is no guarantee that the Fed will be successful in keeping inflation in check. Conditions could change based on direction of the COVID-19 pandemic, as well as other market, economic, and geopolitical factors. So what can you do to help protect your income from the eroding effects of inflation? Consider the following steps:

  1. Review your budget and spending habits. Cutting back on certain discretionary expenses can free up more money to help pay for essential expenses where prices may be rising for food, healthcare, clothing, or transportation.

  2. Follow a plan. The financial planning process takes inflation and other market and economic factors into account when modeling different strategies and scenarios. Planning can help ensure you have a flexible strategy in place that’s aligned with your income and spending goals that can be adjusted as market and economic conditions change over time.

  3. Put excess cash to work. If you have cash on the sidelines that you don’t need for current expenses or to shore up emergency savings, consider investing it, so it can work harder for you.

  4. Check your portfolio asset allocation. A portfolio allocation that’s too conservative may not generate the income you need. For example, if your portfolio earned 4% over the course of a year when inflation was at 5.4% for the same period, you could no longer afford the same basket of goods. Consider if it makes sense to allocate a larger percentage of portfolio assets to growth-oriented investments, which can provide a hedge against inflation over the long term.

To learn more, call the office to schedule time to talk about ways to help protect your income in retirement.


This information was written by KRW Creative Concepts, a non-affiliate of the broker-dealer.

Asset allocation is an investment strategy that will not guarantee a profit or protect you from loss. 

These examples are hypothetical only, and do not represent the actual performance of any particular investments. Investments in securities do not offer a fixed rate of return. Principal, yield and/or share price will fluctuate with changes in market conditions and when sold or redeemed, you may receive more or less than originally invested.

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