January 01st - 3 minutes to read

How Does Inflation Affect Retirement?

Make sure your retirement savings plan accounts for inflation.

financial advisor calculating the impact of inflation on retirement savings
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Many Ohio residents are concerned with the impact inflation has on retirement savings. As you’re likely aware, inflation can decrease the value of your dollar, which means you should consider a cost-of-living adjustment as you plan for the future. Ultimately, the more prepared you are, the better off you will be, so it’s recommended you consult with a financial advisor to better understand inflation rates and other current economic factors.

If you’re wondering, “how does inflation affect retirement in Worthington, OH,” you’re in the right place to get started. We’ll cover some of the basics below.

The Effects of Inflation on Retirement Planning

All our lives, we’re told how important it is to save and invest additional money, as our Social Security benefits won’t cut it once we stop working. It can be very frustrating to realize that the funds you’ve set aside won’t be as valuable once you’re ready to use them. For this reason, it’s good to overestimate how much you think you will need.

Unfortunately, there is no exact formula to determine how much the inflation rate will change in years to come, but it’s generally accepted that prices will rise by 3.25% annually. Investors and financial advisors often look to the Consumer Price Index (CPI) to measure the average change of price over a certain amount of time. But, keep in mind the value of specific products and services rises and falls disjointedly. For example, CPI reports that cars and trucks rose in value by 10.5% in June 2021, while food items increased only by 0.9%.

So, what can you do to protect your funds and have a viable retirement plan?

1. Make Smart Investments

There are so many ways to not only make your money grow, but also have it outpace inflation. Many retirees choose to play it safe and opt for a more conservative portfolio of investments based on consistent past performance, but diversifying with a mix of stocks is a better way to protect against inflation. Investing in real estate is another valuable tool, as are Real Estate Investment Trusts (REITs). It’s great to have bonds and certificates of deposits (CDs) in the mix but consider Treasury Inflation-Protected Security (TIPS) instead, which protect your purchasing power.

2. Delay Social Security Payments

You can actually earn even more in social security by delaying your benefits thanks to cost-of-living adjustments (COLAs). COLAs are based on the total monthly benefit amount; as it increases, so will the dollar amount for adjustments. We generally recommend this if you’re able to continue working and expect to live into your 80’s. But, of course, poor health, physical limitations, and other factors may keep this from being possible.

3. Expect to Spend More

Even if the impact of inflation isn’t an immediate concern, it should be a consideration in your retirement savings and investment strategy. Remember that a fixed income doesn’t cut it for most and that healthcare costs and the cost of goods and services are always on the rise. The average retiree age in Ohio is 63, and as life expectancy rates increase, it’s even more important to plan for the years where you will not receive the same income.

For more assistance, rely on Worthington, OH’s best financial professionals who can help devise a retirement plan tailored to your needs. Schedule a consultation with Royal Oak Financial Group today!