9 Ways to Fight Inflation and Secure Your Retirement

According to the Bureau of Labor Statistics, we are experiencing record inflation: 9.1% as of June 2022. We haven’t seen inflation this high since the early 1980s. The higher inflation goes, the less each dollar you have and earn is worth.

If that sounds scary or confusing, check out what our guest blogger, Nichole Coyle (CERTIFIED FINANCIAL PLANNER™), says about fighting inflation and keeping your money working for you.

So, How Does Inflation Impact Retirement Income? 

Investing in a 401(k), 403(b), IRA, or other retirement account is a common way to build retirement assets while benefiting from some tax advantages. When inflation is on the rise, the future purchasing power of your retirement assets can shrink.

When planning for your eventual retirement, you may not have considered the effects of inflation. Though $500,000 or $1 million seems like a large amount of money, and it may be enough to finance your retirement in today’s dollars, that amount will likely not be enough when you factor in inflation.

Inflation means the value of money will decrease and purchase fewer goods than previously.

Higher inflation erodes the value of the dollar. Not only does this affect those who are accumulating assets for their future retirement, but it also dramatically affects seniors who live off the income from investments and guaranteed sources such as Social Security or pensions.

What About Investing?

Inflation causes our cash to be worth less than it was previously, and stocks and bonds are also down this year. This can make it difficult for retirees to keep up with rising costs. Some guaranteed sources of retirement income provide cost-of-living adjustments, but most will not jump up to 9% or higher to compensate for the current high rates.

In addition, your retirement accounts (like your 401k or IRA) are more likely to be impacted if the government acts against inflation. By raising interest rates, bond prices fall, companies find it more expensive to raise debt, and long-term real estate leases can turn unfavorable.

Here are some tips to consider to combat inflation:

1. Invest in your Employer-sponsored Retirement Plan as well as a Separate Investment Account.

Best-selling personal finance authors like Suze Orman and Ramit Sethi have emphasized the importance of investing to help combat inflation. The average annualized return of the S&P 500 is roughly 10%. Suppose you invest in your company’s employer-sponsored retirement plan and open a separate investment account. You can use the additional investment account as your mid-to long-term savings and take advantage of compounding.

When considering your investment options, ensuring you have a diversified investment portfolio is also important. Many individuals choose to work with an investment advisor or CERTIFIED FINANCIAL PLANNER™, who can advise them based on specific circumstances and goals. A diversified portfolio is built from various assets like stock and bond funds.

A diversified portfolio also includes various sectors such as oil and gas, utilities, consumer staples, commodities, and real estate. Your exposure to any one type of asset is limited in the event of a downturn.

In addition, regardless of how high or low the stock market is on any given day, utilizing dollar cost averaging can help minimize the impact of volatility when investing. When you contribute to your employer-sponsored retirement plan, this is done automatically because funds are invested from each paycheck, often every two weeks or twice per month.

2. Consider TIPS

Treasury Inflation-Protected Securities (TIPS) are government bonds that help protect you from inflation. “The principal of a TIPS increases with inflation and decreases with deflation, as measured by the consumer price index,” as TreasuryDirect.gov explains.

3. Consider Real Estate and Commodities

During inflation, tangible assets such as real estate or commodities are also worth considering. As Morningstar recently noted about commodities:

“In 2021, natural gas, oil, and broad commodity baskets have led the commodity universe in year-to-date returns, during a period where inflation fears have mounted.”

And on the real estate front, that’s something Warren Buffett has also promoted as a way to deal with inflation.

4. Think about Value Stocks in the Consumer Staples Arena

Snigdha Kumar, head of product operations for Digit, says investing in things like food and energy — which are always in high demand — is a smart choice because staples are essentials. Companies selling them can price items higher while riding the wave of inflation.

5. Look for Tax Efficient Investments

Look for tax-efficient investments or overall investment accounts. When you are looking to maximize tax efficiency, investments that tend to lose less of their returns to taxes are better suited for taxable accounts. In contrast, those that lose more of their returns to taxes should be designated in tax-advantaged accounts.

If you want to keep more money, tax-efficient investing will minimize your tax burden, which means you pay less on what your investments earn. One way to do this is to open a Roth IRA (or a back-door Roth). Talk to a financial advisor like myself to find out if a Roth IRA fits into your plan because a tax-free account like a Roth can be very valuable.

6. Don’t keep an Excess of Cash on Hand

“If you’re someone who keeps a large amount of liquid cash on hand beyond what you might need for an emergency fund, then you should consider investing the excess. The stock market is low right now, but over a long rough time frame, that investment can earn a much higher interest rate in the stock market than it would in a savings account,” says Chanelle Bessette, banking specialist at NerdWallet.

7. Don’t Neglect Your Savings

An emergency fund is almost always necessary. Open a savings account with a goal of a minimum of three months of expenses and likely no more than six months of income. The right amount will vary based on risk tolerance, job security, lifestyle, and more.

Though most rates on savings accounts are low, it’s much better to earn some interest instead of none. Instead of keeping all those funds in a regular savings account, you could consider moving some into other short-term savings options. Consider a certificate of deposit (CD), but don’t chase higher dividend rates by investing in a maturity that exceeds how long you can really live without the money.

8. Dive Into Your Budget

Look into what you spend and how you can save. When inflation is high, you often get hit with higher prices everywhere, from the grocery store to the gas pump. So, keep track of your spending and adjust accordingly.

If you find that you need to cut back, try:

• Reducing or eliminating unnecessary expenses.
• Using coupons or rebate apps while grocery shopping.
• Changing your meal plan to include less expensive meals.
• Eating at home and packing lunches instead of eating out.

Additionally, you can find opportunities to earn more. That may include finding a new job or applying for a different position. It could look like a side hustle (think Uber driver, Door Dash driver, or virtual assistant). Or even start with a yard sale (in person or online) with items you no longer need.

9. Don’t Panic

Yes, inflation is high, but if you’re investing, cutting costs where you can, and avoiding (if possible) highly inflated items, you’re already a step ahead.

As always, if you have questions about this or any other financial topics, please don’t hesitate to contact me.

Nichole M. Coyle,
CERTIFIED FINANCIAL PLANNER^TM
20333 Emerald Pkwy, Cleveland, OH 44135
216.621.4644 x1607

Securities and advisory services offered through Cetera Advisor Networks LLC, member FINRA/SIPC, a Broker-Dealer, and a Registered Investment Advisor.
Cetera is not affiliated with the financial institution where investment services are offered or any other named entity.
Investments are: Not FDIC/NCUSIF insured * May lose value * Not financial institution guaranteed * Not a deposit * Not insured by a federal government agency.
All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful.
Investors should consider the investment objectives, risks, charges and expenses associated with municipal fund securities before investing. This information is found in the issuer’s official statement and should be read carefully before investing.
Dollar cost averaging will not guarantee a profit or protect you from loss, but may reduce your average cost per share in a fluctuating market.
Distributions from traditional IRA’s and employer sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching age 59 ½, may be subject to an additional 10% IRS tax penalty.
Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing. A diversified portfolio does not assure a profit or protect against loss in a declining market.
The TIPS bond is backed by the full faith and credit of the US Government as to the timely payment of principal and interest. The principal value will fluctuate with changes in market conditions. If they are not held to maturity, they may be worth more or less than their original value.

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