4 Ways to Safeguard Your Retirement Against 9.1% Inflation | Personal-finance

4 Ways to Safeguard Your Retirement Against 9.1% Inflation | Personal-finance

(Sam Swenson, CFA, CPA)

In a summer marked by economic uncertainty, those on the brink of retirement are feeling most of the heat. Inflation data — most recently registering at 9.1% — are staggering. Combine this reality with overseas conflict and rising interest rates, and you have a big-picture scenario that doesn’t bode well for aspiring retirees.

Here, we’ll go through four ways to safeguard your retirement amid unusually high inflation.

1. Add I-bonds to the mix

Series I savings bonds, offered electronically through the United States government, are currently paying interest at an annual rate of 9.62%. These bonds represent loans to the U.S. government with an interest rate indexed to current inflation levels. If you choose to buy, you’ll need to own for at least a year, and you’ll be subject to a maximum purchase limit of $10,000.

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There are ways to get creative around I-bonds, even if $10,000 isn’t a meaningful share of your investment portfolio. For instance, the $10,000 limit applies per personwhich means, if you’re married, your spouse can also purchase I-bonds. Or, if you happen to have created a revocable trust, the trust is also considered a person in this context, and can also purchase bonds.

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2. Delay filing for Social Security

Social Security is one of the few ways to access inflation-adjusted income without having to do anything except wait. By waiting until full retirement age (“FRA”) to claim benefits, you’ll get a lifetime annuity proportional to the amount of payroll tax you’ve contributed to the system over your working career.

For every year you delay your claim beyond FRA, you’ll receive a per-year bump of 8% in addition to any cost-of-living-related adjustments along the way, up until the age of 70. In other words, by delaying your benefit claim, you’ll receive significantly more than your proportional share of benefits, and you’ll receive them with inflation protection for the rest of your life.

3. Continue working

This is health-dependent and perhaps easier said than done, but working up to and through your early retirement years can ease the stress on your finances. Even part-time work, through which you earn $10,000 or $20,000, can go a very long way in protecting your nest egg. Reducing the need to withdraw from your portfolio is absolutely essential in the face of economic headwinds.

The non-financial aspects of working also matter a great deal in this context. If you have an undesirable work environment or long commute, continuing on may seem to difficult to bear. But if you’re able to find work that you either find meaningful or easily tolerable (remote work can fit the bill here), it can make sense on many levels to keep some sort of active income.

Keeping engaged is undoubtedly a key to overall retirement success, and working can be a big part of that — both financially and non-financially.

4. Recommit to diversification

Given the protracted bull market of the 2010s, many people simply stuck to full-stock portfolios. In retrospect, stockholders did far better than bondholders over the most recent bull run, with equity returns consistently competitive and interest rates at generational lows. The next decade may look quite different, which means the need for portfolio diversification should be top-of-mind.

Globally diversified portfolios consisting of stocks, bonds, and real estate are well-positioned to combat most economic environments; the key is to not overcommit to any one asset class. Amidst economic turmoil, spreading your eggs around to different baskets is simply a necessity of intelligent investing.

Control the variables you can control

While there isn’t much the average pre-retiree or retiree can do to change monetary policy, there are things they can do to make things easier to handle in retirement. Looking into I-bonds, delaying Social Security, working in retirement, and recommitting to global diversification are a few of these strategies.

In general, remember that you can only control what you can control, and let the process play out as it will. Sticking to a laid-out methodology when it comes to managing your investments is critical in that effort.

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