Money Matters

5 Steps Retirees Should Take to Manage the Risks of High Inflation

25 Oct 2022 by: Matt Showley 

Everyone is feeling the pinch of higher inflation, especially the rising costs of goods from groceries to gas. However, groups such as retirees face a unique set of challenges, including limited or fixed income and increasingly expensive lifestyle pursuits, that may cause concern during this record-high inflationary period. While we can’t time it, we know high inflation won’t last forever, likely not even longer than two to three years, based on collective data. We also understand the desire to take action during a stressful time. So what should you do right now if you’re feeling the pressure? We’ll discuss five steps you can consider to help mitigate the short- and long-term effects of high inflation during retirement.

#1 Refer to Your Financial Plan

Ideally, you already have a financial plan and retirement strategy with savings and a diversified portfolio to help absorb rising costs. As a fundamental piece of financial planning, referring back to your plan can help you gain perspective when deviations occur. For example, now it’s high inflation, but later it could be another factor, economic or personal. It’s always a best practice to know your parameters, how much you can spend, and when to make adjustments or tap into your reserves.

#2 Make Lifestyle Changes

Unfortunately, high inflation tends to significantly affect the things retirees have worked their entire careers to enjoy, such as travel, entertainment, and other leisure activities. Now may be the time to make adjustments and consider how you can limit or postpone non-urgent activities, such as a home remodel, vacation, or large purchases. In addition, view other areas of your budget where you can reduce costs temporarily until we return to a more normal inflationary environment.

#3 Tap Into Reserves

While it may be hard to tap into your rainy day fund, if you feel like it’s raining, that’s precisely why those funds are set aside. As a good rule of thumb, you should have at least 6 to 12 months’ worth of expenses saved in an easily accessible account that will enable you to make ends meet until you can build up your savings again. The last thing you want to do during this time is go into debt. While it may seem like a quick fix, it could present even more challenges and stress later.

#4 Change Your Investment Strategy

Inflation can be particularly dangerous to retirees if they have little or no additional income because their purchasing power erodes yearly. If you’re not working, the only way to counter rising costs is to have investments that will also increase with inflation. Some assets with built-in inflation protection include commodities, real estate, stocks and Treasury Inflation Protected Securities (TIPS)s. If you already have inflation-protected investments, it may be a good time to get more. However, if you don’t have any, you may want to consider how to add them so you’re prepared for the future.

#5 Relax

It’s not uncommon to feel a rush of emotions when costs are rising, your income may be limited, or you’re experiencing flashbacks of high inflationary periods of the past. However, sometimes the best course of action is inaction. Managing emotional responses and reactive behavior can give you time to monitor the situation, gain perspective, and take balanced next steps. Please contact your advisor for support if staying calm is proving difficult.

These steps are universal in financial planning and managing economic changes. Today’s environment is one example of why having a solid foundation in place is critical. In the meantime, being aware and taking necessary action, speaking with your financial advisor, and looking for indicators that inflation is changing, such as the labor market and wages, can help provide more peace of mind.

If you’re feeling concerned, need more information, or want to make some changes, feel free to contact our team. We’re here to help you navigate how high inflation may affect your retirement plans and finances.

CCMI provides personalized fee-only financial planning and investment management services to business owners, professionals, individuals and families in San Diego and throughout the country. CCMI has a team of CERTIFIED FINANCIAL PLANNERTM professionals who act as fiduciaries, which means our clients’ interests always come first.
How can we help you?

Matt Showley is a CERTIFIED FINANCIAL PLANNER™ professional and Accredited Estate Planner®️ who advises individuals, families, and business owners on portfolio management, financial planning, tax and estate planning, real estate, cash-flow modeling, and education planning. In addition to his role as principal and owner, Matt continues to oversee the firm’s operations and work with new and existing clients. Matt joined CCMI in 2006 and has contributed significantly to the firm’s wealth management and financial planning processes and client relationships.

More by this Author
Below are additional articles written by this author.

As you embrace retirement, crafting an estate plan is pivotal to protect your legacy, assets, and loved ones’ futures. An estate plan is essential to…

Restricted stock units, commonly referred to as RSUs, are becoming an increasingly popular equity compensation option not only in large corporations and publicly traded companies…

Paying taxes is inescapable, and as our wealth and financial complexities grow, so does our tax liability. Developing and implementing wealth management and tax strategies…