Broker Check

How to Protect Your Retirement Income from Record-Setting Inflation

December 15, 2021

Practically everyone has heard of inflation, but many people don’t fully understand what it is and how it can impact their lifestyles. With 30-year record high inflation rates happening right now, it’s more important than ever to develop a solid understanding of inflation.

What is inflation?

Inflation is the positive change (increase) in consumer products and services prices over a defined period of time. The cost of producing and delivering goods and services increases with time, and the providers of these items respond by increasing the prices consumers pay.

In theory, yearly raises for employees and cost of living increases for Social Security payment recipients should balance out the effects of inflation. For many retirees and near-retirement employees, though, this is not the case.

Why is inflation such a big concern for today’s retirees?

Retirees are being told that the planned Social Security cost of living increase for 2022 is the highest in decades - Social Security recipients will receive an additional 5.9% in monthly benefit payments.

While this is significantly higher than the average yearly increase, it is still not enough to keep up with inflation. The Consumer Price Index rose by 6.2%, the highest yearly increase in 30 years.

In addition, the typical premiums for Medicare Part B coverage, which pays for outpatient care and certain types of medical equipment, are set to increase by 14.5% in 2022.

The combination of the high inflation rate and the startling increase in Part B premiums will leave retirees with less purchasing power than before - unless they take steps to protect themselves.

How can retirees minimize the effect of inflation on retirement?

While no single strategy is suitable for everyone, retirees and workers nearing retirement can take steps to shield their finances against the effects of today’s record-high inflation rates.

Here are a few tips to get you started:

  • Delay retirement. If you haven’t retired, delaying your retirement by even a few years could give you considerable leverage and help you increase your savings to shield against inflation. Also, retiring later could earn you a larger Social Security benefit each month, providing more financial insulation.
  • Consider freelance or consulting work. You might have said goodbye to the office, but that doesn’t mean your knowledge and skills can’t generate income to offset inflation. Limited consulting or freelance work can help you close the inflation gap without taking away your leisure time.
  • Review your investments. A high-inflation market isn’t necessarily the time to pull out of the stock market. It can be an opportunity to build additional wealth. Schedule a time to review your portfolio with a financial expert to ensure your assets are diversified and generate positive returns.

Want personalized help?

Protecting your assets against inflation doesn’t have to be confusing. Contact one of our experienced advisors to get the help you need today.