Small increases in inflation can have significant consequences to a retiree's investment portfolio. How do you invest your savings during retirement in a new inflationary reality?

For most retirees, inflation and its impact on economic growth have not been top of mind over the past few decades. But that’s changing. With rates of inflation across the globe hitting peaks not seen in decades, it's become a new reality that retirees can no longer ignore.

Luckily for most retirement-age investors, there are actions you can take to mitigate the potential impacts of rising inflation.

Inflation and Retirement Investing - What you need to know.

A recent study from Global Atlantic Financial Group noted that 61% of retirement-age investors believe that high inflation will make it harder to create an income stream that will last their lifetimes. This is understandable, considering its potential effects on the cost of living. This can also affect the purchasing power of someone living on social security and other retirement benefits. This can have a monumental effect on someone's retirement plans.

Consider a person who saves $1 million for retirement and expects to spend $50,000 annually. Assuming a 3% annual inflation rate and a steady 3% annual return and that million would last about 20 years. Now assume inflation rose to 12% a year (we see you European Union). With those rising prices, that million would only last about 11 years and a few months. Seems like a good reason to be concerned about inflation when you retire, am I right?!?

Inflation, quite simply, is the silent enemy to anyone on a fixed income and low-risk investor appetite.

What can retirees do to overcome inflation challenges?

  1. Keep steady and save where you can. Don’t panic and try to overcompensate by chasing short-term risky investment returns. In most historical cases, inflation is transitory in that hyperinflation only lasts for a period of time. It’s important to remember that most recessions and periods of deflation follow shorter periods of hyperinflation. One could say that hyperinflation is a leading cause of a recession and deflation. Understanding that these cycles will create a long-term balance can help put things in perspective. Rather than chasing short-term returns, it might be better to look for ways to cut day-to-day costs during periods of hyperinflation.
  2. Invest beyond your bank account. Many times, rising interest rates accompany rising. Unfortunately, it is unlikely that bank savings rates will exceed inflation rates—making even well-placed cash savings at risk of erosion. Most retirees will spend just as much time, if not more, being retired as they did working. So, they still need to invest their savings for 20-30 years. Within that time frame, there will be quite a few cycles of inflation, deflation, economic expansion, and recession. Thoughtful strategic investing in stocks, bonds, and real estate may help a retiree turn these changes in financial cycles from concerns to opportunities. Understanding how your retirement accounts grow can help you determine if they can overcome inflation. If you need help understanding the stock markets or developing a strategy, financial advisors can help.

Depending upon your age, changes in inflation will have different impacts on your life and your savings. For those individuals in or approaching retirement, times of inflation are an opportune time to step back and reassess. It's helpful to rethink our saving, spending, and investing to make sure it is in alignment with the environment we find ourselves in.

Want to protect your portfolio from inflation?
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Colby McFadden

Founder, Quiver Financial

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Justin Singletary

Director of Retirement Services,
Quiver Financial

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Patrick Morehead

Director of Alternative Investments,
Quiver Financial

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