The Impact of Inflation on Your Retirement Plan

by | Jun 11, 2024

Rising inflation and market volatility are shaking up retirement plans. From April 2022 to April 2023, the consumer price index has risen by almost 5%. How do you navigate this new reality and secure your future?

Inflation isn’t just a grocery bill annoyance; it’s a long-term threat to your retirement nest egg. 

While everyday purchases feel the pinch, the true danger lies in its gradual erosion of buying power over decades. This translates to a potential shortfall in your retirement income, leaving you struggling to maintain your desired lifestyle.

A survey conducted by the Employee Benefit Research Institute identified inflation as one of the primary reasons for a drop in retiree confidence in the country. 

At Kreitler Financial, our commitment lies in trying to safeguard our clients from the erosive impact of inflation on their retirement savings. We achieve this by crafting tailored strategies uniquely designed to meet the individual needs and goals of each client.

How Inflation Affects Retirement Funds 

Even the wealthiest retirees are worried about the specter of inflation looming large over their financial future. Let’s face it: the fear of running out of money in retirement is a constant companion, even in the most stable of times. 

Now, imagine facing that fear while watching the price of everything creep upwards. That’s the harsh reality of inflation, an uncontrollable force that throws a wrench into even the best-laid retirement plans. 

Inflation is a slow, silent thief stealing your purchasing power with every passing year. The same amount of money buys less over time. 

So, while your $100,000 savings might seem comfortable today, with a 3% annual inflation rate, it can only buy what $97,000 could buy just a year later. This seemingly small difference compounds over time, potentially leaving you struggling to afford the same lifestyle you planned for.

Healthcare costs tend to outpace inflation, and that’s a big concern for retirees. As we age, our need for medical services often increases, potentially even requiring long-term care. Ignoring this reality in your retirement planning can be a recipe for financial stress later on.

Planning for rising costs is a smart move, not a scary one. Kreitler Financial encourages you to take charge today so that you can plan for retirement to be a time of freedom, not financial worry. 

What Can You Do to Mitigate the Effects of Inflation on Your Investment Fund?

  • Estimate Future Expenses: 

Planning for retirement requires a careful estimation of future expenses, considering the impact of inflation. While certain costs may stay constant, others, like healthcare and housing, tend to increase over time due to inflation. 

By factoring in inflation, you can better understand your financial requirements during retirement, ensuring that your savings can accommodate rising expenses and let you sustain your lifestyle. 

  • Hedge Against Inflation: 

Crafting an investment strategy that considers inflation is essential to safeguarding the purchasing power of retirement funds. Over time, assets like stocks, real estate, and Treasury Inflation-Protected Securities (TIPS) have proven effective in offsetting inflation. 

Through diversification and dedicating a segment of your portfolio to these inflation-hedging assets, you can minimize the impact of inflation on your retirement savings.

  • Keep On Investing: 

Making wise investment choices can significantly shield your retirement savings from the impact of inflation. With inflation historically averaging around 3% annually over the past century, contrasted with the S&P 500’s average annual return of approximately 7%, adjusted for inflation, there’s reassurance for those concerned about inflation’s effects.

  • Regular Review Your Plan: 

By periodically reviewing your plan and making strategic adjustments to your portfolio and spending habits, you can ensure its continued alignment with your long-term financial goals and mitigate the potential erosion of your purchasing power due to inflation.

  • Avoid Making Impulsive Investments: 

When the market dips and inflation rises, it’s easy to panic. We see our savings shrink and worry about the future. But here’s the key: don’t let emotions dictate your investment decisions. 

Remember, the market is a marathon, not a sprint. While short-term volatility can be unsettling, focusing on the long-term horizon is crucial for your retirement goals.

Work With Us 

At Kreitler Financial, we understand the challenges inflation poses and are dedicated to helping you build a resilient retirement plan that weathers market fluctuations and helps secure your financial future. 

Our experienced advisors will listen to your unique needs and concerns, assess your current plan, and create a personalized strategy to help mitigate the impact of inflation and optimize your retirement savings. 

So book a call with us, and let’s face the future together.