How Inflation Might Affect Your Retirement Plans

How Inflation Might Affect Your Retirement Plans

August 14, 2022
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Unless you’ve been WAY out of the information loop, you’re likely aware that the nation is facing a substantial period of inflation. In fact, it’s the worst period of inflation in the U.S. in the last 40 years.

A rise in costs that extreme could have some substantial impacts on your retirement plans. In this article, we’ll cover some specific impacts of inflation on your retirement and what you can do about it.

The Basic Math Of Inflation

First off, here’s a quick primer on how inflation works. “Inflation” represents the increase in the costs of goods and services. It’s usually determined by looking at data over one year. That said, the current inflation rate is 8.5% as of the end of July 2022.

Let’s say you’ve planned on needing $60,000 to cover your expenses in retirement for a year. Well, the current inflation rate means you now need $65,100 to cover those same variable expenses. If your retirement investment returns can’t keep up with that increase, it could mean trouble. Check out our article on earning a passive income from your investments.

What Adjustments Can You Make To Your Retirement Plans To Account For Inflation?

The good news is that when it comes to inflation and your retirement plans, it’s not a hopeless situation. Here’s a closer look at some of the actions you can take to minimize the impacts of inflation on your retirement.

Audit Your Spending Habits

This step may seem obvious, but it’s too important not to put it on the list. It’s especially important if you haven’t yet retired. Remember, looking at what you spend on things right now makes more sense than any number-crunching you did in the past.

Look at your daily expenses, but also factor in any BIG purchase you may be thinking about, like a new house or car. Then, look at your planned retirement income from Social Security, pensions, and any investments you plan to cash in.

You may be surprised at how much you spend on seemingly small things. Most importantly, though, if your current expenses outweigh your planned income, you’re going to have to take some serious steps to adjust your retirement plans.

Adjust Your Spending Habits

Now that you know what you’re spending on daily items and services, you may need to cut back on how much you spend on them. You may need to cut back on how frequently you eat out at restaurants or how much driving you’re doing in your free time. I’m sure I don’t have to tell you how much fuel costs eat into your monthly budget.

Another area many retirees are cutting back on is the number of monthly subscriptions they have. Canceling a few streaming channels or mobile phone apps could go a long way toward hitting your retirement budget.

Finally, you should take another look at those big-ticket purchases. Do you really need to move out of your current home? Waiting a while until the housing market cools down a bit could save a good amount on your monthly expenses. The same rule applies to purchasing a new vehicle or taking that big vacation. Holding off now could be the difference between hitting your goals or dire straits later.

Put Off Your Retirement

I know—it’s probably not what you want to hear. But waiting another year could have a tremendous effect on your retirement woes.

For example, working an extra year will obviously allow you to save more. But you’ll also be potentially growing your nest egg for another year. And, with any luck, the market will be in a better place 12 months down the road when you start making withdrawals.

Finally, if continuing to work full-time just doesn’t work for you, consider at least working part-time. Here’s a list of some part-time and freelance gigs for retirees.

Hold Off On Collecting Social Security, If You Can

This obviously only makes sense if you have other retirement assets you can live off of during retirement. However, putting off collecting your social security can be a smart way to account for inflation. That’s because for every year you delay collecting on social security after you reach retirement age (up to age 70), your benefits increase by 8%.

We’re Here To Help

If inflation and your current retirement plans are keeping you up at night, we can help. Contact us for a FREE WEALTH BLUEPRINT.Together, we can assess your situation and work to achieve your retirement goals.