4 Ways to Stop Inflation from Ruining Your Retirement


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Inflation isn’t just being felt at the grocery store and the gas station — it’s also destroying the pensions of countless Americans.

As inflation hit a 40-year high of 8.6%, the Federal Reserve began raising interest rates, causing a sell-off in the stock market. The combination produced a perfect storm for retirees unfamiliar with a high inflationary environment and a falling stock market. AARP research shows that 62% of workers say daily expenses prevent them from saving for retirement; 40% of workers cite paying off debt as their biggest obstacle to saving.

“Right now, Americans are seeing their purchasing power eroded as the price of goods and services rise, the value of their retirement accounts suffers, and the returns on their investments fall as the market stock market is collapsing,” said Eric Henderson, chairman. Nationwide Financial’s annuity business. “As the Federal Reserve raises interest rates to curb inflation, the cost of borrowing rises, forcing many of us to do more with less. In this environment, Americans are understandably nervous.

No one expects inflation to stay at 8.6% forever, but for now it’s ruining retirement in a number of ways, including:

1. Decreased purchasing power

The biggest blow to retirees in times of high inflation is purchasing power. As prices go up, your dollars don’t go that far. “The typical family is looking at $450 a month, on average, going and getting nothing in return,” says Pam Krueger, founder of Wealthramp.com. “It’s like they’re taking a pay cut.” This could affect their ability to save for retirement.

If inflation is affecting your retirement savings, now is a good time to assess your expenses and cut spending to counter rising prices. AARP’s Money Map can help you create a savings plan and budget. “Some people may need to find side work or a part-time role, while others may be able to increase their cash flow by cutting costs in different areas,” Henderson says.

2. Savings doesn’t work as hard

The performance of savings, CDs and bonds has been pretty dismal, especially with inflation so high. But the Fed’s recent rate hikes don’t mean the cash in your bank account will increase overnight. “We know that banks, brokerage firms and financial institutions are rapidly raising loan and mortgage rates,” says Krueger. “They tend to react slowly to rising savings rates. If your money is earning 2% and inflation is 4% or higher over the next 10 years, that has a detrimental effect on the power of the economy. purchase in the future.” Even if inflation drops to 5%, the real return will be negative, she said.

If you have plenty of cash, now may be the time to diversify your holdings into cash, stocks, bonds, and other investments. If possible, build enough cash or cash into your investment plan to pay for a year or two of bills, Krueger suggests. This will prevent you from selling shares at an inopportune time to boost your cash flow. “You never want to be forced to sell stocks,” she says. “Look at your whole plan and make sure your strategy and plan take inflation into account.”


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