How you can prepare for the impact of inflation in retirement

Planning for retirement can feel like a challenging task, especially during times of economic uncertainty or when the impact of inflation is on the rise. However, these concerns don’t have to derail your financial goals. While savings and inflation may fluctuate over the years, making thoughtful, well-informed decisions can help you remain on track, even during market downturns or periods of high inflation. By planning ahead and taking a long-term approach, it’s possible to protect your retirement savings and help your future self be better prepared to face retirement with confidence.

How can inflation affect retirement planning and saving?

Inflation raises prices for consumers over time, where the purchasing power of the dollar decreases. This means that the money saved today may not stretch as far in the future when it’s time to retire. As inflation continues to drive up the cost of goods and services, a person’s retirement savings may not keep pace with the rising cost of living and inflation. While higher interest rates may benefit savings accounts by increasing interest earned, they can have a negative effect on any outstanding debt and make it more expensive to have a balance. When planning for retirement, it’s crucial to account for inflation’s effect on both savings and expenses and to create a strategy that can help minimize its influence on overall financial security.

Why worry about retirement planning, savings, and inflation now?

Planning for retirement now is important because inflation can reduce the future value of your savings, making it harder to cover expenses later in life. Taking action early gives your savings more time to grow and helps ensure you’ll have enough to maintain your lifestyle in retirement.

As inflation drives up prices over time, it can be challenging to predict future expenses or know if your nest egg will be sufficient. By creating a diversified retirement portfolio, you position your savings to grow and generate the income needed to keep pace with rising costs. Staying proactive also provides flexibility to adjust your plan as conditions change, putting you in greater control of your financial future.

How can you account for inflation in retirement planning

The average inflation rate in the U.S. has typically ranged from 2-3% per year, although it can fluctuate based on economic conditions. This means that over time, the purchasing power of your savings can decrease, and retirement income may not stretch as far as it does today. It’s important to consider how inflation will impact retirement income needs, especially when estimating the costs of healthcare, housing, and everyday expenses in retirement.

The closer a person is to retirement age, the more important it becomes to adjust their savings strategy to account for rising costs. For those concerned about how inflation will impact their retirement, working with a financial professional can help them optimize their retirement portfolio, adjust their savings strategy, and better prepare for what to expect when they reach retirement age. Effective retirement planning inflation strategies can help protect savings and ensure that financial goals are met despite potential economic fluctuations.

How you can fight inflation in retirement

Whether retirement is on the horizon or still years away, there are steps that can help fight inflation in retirement and protect hard-earned savings. Since inflation can erode the purchasing power of a person’s money, it’s important to plan ahead and make moves that can help minimize its impact on retirement income. Here are four key strategies for helping combat inflation: 

1. Select assets that stay ahead of inflation

Selecting the right assets can help savings continue to grow, even in the face of rising costs. Certain assets are known to be protected from inflation or can even outpace it. Stocks, for example, have historically offered growth that outstrips inflation over the long term. Inflation-protected bonds are specifically designed to rise with inflation and can provide a safeguard for investments. Certain commodities such as gold and real estate also tend to hold or increase in value when inflation rises. 

2. Prepare for emergencies & healthcare costs

Creating an emergency fund is a crucial part of retirement planning, since unexpected expenses can arise at any time. Having savings you can access specifically for emergencies can help you avoid tapping into certain accounts or increasing debt. For aging adults, healthcare costs can be a significant concern in retirement. Options such as long-term care insurance or certain riders on life insurance policies can also offer financial protection against high medical expenses. Life insurance policies with cash value can provide a source of income once you retire and can assist with healthcare costs or other financial needs. Preparing for both planned and unexpected costs can help ensure that if a situation arises, it won’t undermine retirement savings or overall financial stability. 

3. Get guaranteed income with an annuity

Annuities can provide a reliable source of guaranteed income during retirement, making them a valuable option for those seeking greater financial stability and peace of mind. With tax-deferred growth potential, annuities can help savings to grow without being taxed until withdrawals are made. Additionally, certain types of annuities can offer protection from market volatility and provide a steady income even during market downturns or rising inflation. By incorporating annuities into a retirement plan, it’s possible to add an extra layer of financial protection that helps support long-term financial goals.

Planning for retirement with Midland National

As inflation continues to impact the economy, preparing for this potential retirement risk becomes more and more important. While inflation can drive up living costs, careful planning can help ensure you have enough savings to last throughout retirement. By diversifying investments, adjusting strategies to account for inflation, and securing reliable income streams, it’s possible to maintain greater financial stability in the years ahead. Consulting with a Midland National financial professional can also help you create a proactive approach to retirement planning and allow you to be better equipped to navigate both current and future economic challenges while protecting your long-term financial well-being.

The term financial professional is not intended to imply engagement in an advisory business in which compensation is not related to sales. Financial professionals that are insurance licensed will be paid a commission on the sale of an insurance product.

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