Inflation Proof Your Retirement


It’s a New Year but it’s the same old story: inflation. How bad will it get, and how can you help protect yourself?

As we enter the New Year, inflation remains a major concern for consumers and investors. Beyond that, the current inflation spike also has many older Americans worried about its potential impact on their retirement plans. In a way that’s good because inflation should be a major concern when it comes to retirement planning. I’ll tell you why on today’s show and share some tips on how to Inflation-Proof Your Retirement. I’ll cover: Why inflation is such a big concern again for older workers and retirees; some scary facts about inflation and retirement; ways to inflation-proof your retirement plan; and how investing for income helps.

Now, let’s talk inflation. While all Americans are feeling the effects of it, if you’re over 50 you may be more worried about inflation for a couple of reasons. One is that you’re old enough to remember the double-digit inflation rates of the 1970s, and you know that as bad as inflation is now, it can get a lot worse. And two is that you’re either retired or getting close to retirement age, and you know – on some level – the eroding effect inflation can have on your retirement nest egg over the long run. According to a survey late last year, 71 percent of investors age 59 to 75 believe rising inflation will negatively affect their retirement savings. Moreover, 46 percent of investors said they believe rising inflation and low interest rates will make it more difficult to have steady income in retirement. Again, this increased awareness might be a silver lining in today’s dark cloud of inflation because underestimating the effects of inflation is one of the most common and costly mistakes retirees make.

Why is it so costly? Well, consider the impact that even an average inflation rate of about three percent could affect your finances over the next 20 years. If you needed $60,000 dollars for your first year of retirement, in 20 years you would require over $108,000 to match today’s purchasing power of $60,000. That’s scary enough. What makes it scarier is that people are living longer than ever. With today’s longevity rates, you may need to plan for up to 30 years of retirement income, not 20.

Things get even scarier when you factor in healthcare inflation.

Since 1948, the cost of medical care has grown at an average annual rate of 5.3 percent compared to 3.5 percent for the Consumer Price Index overall. And Social Security isn’t keeping up. The Senior Citizens League estimates that the average Social Security benefit has lost almost a third of its buying power since 2000. That’s because Cost-of-Living Adjustment – or COLA – increases have not kept up with rising costs. In some years, the COLA has been nonexistent or nearly so. Although the 2021 COLA was set at 5.9 percent, be aware that even a good benefit increase is often undercut by increased premiums for Medicare Part B. For 2022, Medicare Part B premiums are set to rise by 14.5 percent, one of the biggest jumps in the program’s history.

While there’s no way to escape inflation, you can take steps to help minimize its impact on your retirement. First, try to maximize your savings and minimize your debt, obviously.

Second, identify or modify – if necessary – your retirement goals. Inflation means you may want to change your timetable on some of your goals or make financial moves now that can better help you achieve them.

Third, keep an eye on the Fed. How the Federal Reserve does or doesn’t respond to inflation is one of the biggest factors in determining how it might affect the financial markets.

Fourth, try to maximize your social security. Even though your benefits probably won’t keep up with inflation, trying to maximize them is still one of the most important keys to inflation-proofing your retirement and achieving your goals.

Fifth, consider the costs of long-term care, which is a separate challenge unto itself. Insurance and Medicare coverage for long-term care is limited, and statistically about 70 percent of Americans who live past 65 will need some form of long-term care.

And sixth, make sure your financial strategy is flexible enough for you to both anticipate, and respond to, the potential impacts of inflation.

The good news is that all these inflation-proofing steps – along with many others – are central to the income model. An Income Specialist uses a variety of techniques to help you keep pace with inflation and even stay ahead of it. In addition, many income-based options – including I-bonds, some annuities, and dividend paying stocks – offer built-in inflation protection. What’s more, an Income Specialist can often help you engineer your inflation hedge through the strategic reinvestment of interest and dividends you don’t need for income. Beyond that, the income model accounts for today’s longer lifespans and helps give you a strategy that’s inflation-proof not just for 10 or 20 years, but 30 years or as long as you need it!


Investment Advisory Services offered through Sound Income Strategies, LLC, an SEC Registered Investment Advisory Firm. Arbor Financial Services of Florida, Inc. and Sound Income Strategies, LLC are not associated entities. Arbor Financial Services of Florida, Inc. is a franchisee of the Retirement Income Store. The Retirement Income Store and Sound Income Strategies LLC are associated entities.

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Arbor Financial Services of Florida is a full-service financial firm dedicated to helping those in the Melbourne, FL area meet their long-term financial goals. Our team of financial advisors and wealth managers are experienced in helping clients preserve their savings, so they can use it as a source of steady income in retirement.

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