If you’re getting tired of paying more for food, gas, clothes and rent — and just about everything else these days — you aren’t alone. Inflation has been upending household budgets for months now, and its momentum doesn’t seem to be slowing.
Retirees on fixed incomes will most likely feel the pinch on their pocketbooks for at least the next few months. If you haven’t already, now is the time to review your budget, your income plan and your portfolio with an eye toward protecting your purchasing power.
As we move through the first months of 2022, here are some specific planning points to keep in mind:
Do You Have a Backup Plan for Your Income Plan?
This year’s historic 5.9% Social Security cost-of-living adjustment (COLA) will help retirees with rising prices — but probably not as much as many hoped. That’s because Medicare’s Part B monthly premiums also saw a bigger hike this year. Standard monthly premiums for Part B now cost $170.10 — up 14.5% from $148.50 in 2021.
Most Social Security recipients whose Part B premiums are typically deducted from their Social Security benefits still will see a net increase in their monthly checks. But it likely won’t be enough to completely offset increasing costs if inflation sticks around for a while. And some private pensions don’t offer automatic COLAs. You may find it’s necessary to modify your budget or to look to another income source (such as a temporary job, home equity loan, etc.) to make up the difference.
Is Your Investment Plan Designed to Keep Up with Rising Costs?
Let’s face it, inflation isn’t a new or unexpected risk for retirees. Even relatively low rates of inflation can have a harmful effect on your purchasing power over time.
It’s vital, therefore, to develop an investment plan that can help you keep pace, whether costs are soaring, as they have been recently, or quietly creeping up over time.
Inflation-hedging strategies should be a well-thought-out, long-term component of your retirement portfolio, and your financial adviser can help you pick the best products based on your needs.
It might mean looking at the pros and cons of investing in commodities or real estate, both of which tend to rise in value during periods of inflation. Or it could mean purchasing U.S. Treasury Inflation-Protected Securities (or TIPS), which offer the safety of government-backed bonds but with interest payments that are designed to rise with inflation.
Your adviser will likely recommend leaving a portion of your portfolio invested in stocks to keep your money growing for a long retirement. Stocks are unpredictable, of course, but historically …….