Record High Inflation: What Does It Mean for Your Retirement?

Sep 19, 2022

For the past two years, inflation has been setting records. I think it is safe to say that nobody has been left unaffected. My grocery bill has jumped by more than 50%. I find myself cutting out non-essentials and bickering with my wife over what used to be a mundane task...grocery shopping. I recently did an interview with the Wall Street Journal on this, you can check it out here. It's funny :-)  

On a serious note, Inflation has a funny way of infecting our lives. It affects everything, from the food we buy to the trips we take and even our outlook on the future. For those of us nearing retirement or already retired, this rise in inflation can be especially troublesome.

Rising prices can quickly eat away at our nest eggs, and if we're not careful, inflation can leave us struggling to make ends meet in retirement.

So, what can we do to protect ourselves from inflation?

Here are 3 ways we can protect ourselves from inflation:

#1 - Don't Pay Retail!

This may sound like common sense, but it's important to remember that when prices go up, our purchasing power goes down. This means we have to be smart about the way we spend our money.

One of the best ways to do this is to avoid paying retail whenever possible. There are a number of ways to do this, but some of the easiest include using coupons, shopping at discount stores, and buying in bulk. Holding off on making those major purchases or repairs is probably a sound idea as well. 

Of course, this isn't always possible (I'm not going to buy a new car at a discount store and I am not going to wait to repair my leaky roof!), but making an effort to avoid paying retail whenever possible, and delaying major expenses can help offset the effects of inflation.

#2 - Staying Invested

Another way to protect ourselves from inflation is to stay invested. During inflationary periods the stock market is going to "re-price" itself. This is the process by which the stock market adjusts to the new reality of higher prices.

While there will be some bumps along the way, over time, the stock market will adjust and continue to grow. This means that if we stay invested, our portfolios should keep pace with inflation.

Of course, not all companies or investments will be winners, so we need to ensure that our portfolio is diversified. After all, there are no guarantees in investing, only time will tell who is prepared! But it's important to remember that staying invested is one of the best ways to protect ourselves from inflation.

#3 - Preserving Capital

The third way we can protect ourselves from inflation is by preserving our capital. This means cutting back on non-essential spending.

For example, instead of going out to eat 3 times a week, we may want only to go out once. Or, we may want to take a staycation instead of an expensive vacation. By preserving our capital, we can keep more of our money invested over the long run, allowing our assets to grow to combat inflation. 

Remember, our money needs to last for the rest of our life, and we need it to grow. Unexpected expenses, taxes, market losses, and inflation all count as losses and hurt our nest egg equally. 

Of course, these are just a few ideas. 

There are many other ways to protect ourselves from inflation. But, if we can remember to pay attention to the way inflation is affecting our lives and take steps to offset its effects, we can help ensure that we maintain our purchasing power and quality of life in retirement.

Do you have any tips on how to protect yourself from inflation? I'd love to hear them! Please share

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