Saving for retirement can be daunting. You might be particularly worried about how inflation will affect your standard of living when you’re no longer working. Fortunately, there are several strategies you can use so you’ll have enough money to live comfortably when you’re retired.
Account for Inflation When Setting Your Savings Goals
Prices for goods and services will be higher in the future. That’s a reality that you need to prepare for.
Inflation can affect the costs of some goods and services more than others. Inflation can also impact individuals in different ways.
For example, the cost of housing might rise significantly between now and the time when you’re retired. That won’t be a concern for you if your mortgage will be paid off before you stop working.
Where you live can also influence the amount of money you’ll need. Relocating to an area with a lower cost of living can help you stretch your retirement dollars farther.
Think about where you plan to live when you’re retired, the types of expenses you’ll have, and how much of an impact inflation is likely to have on your monthly budget. Look at historical averages and use that information to make a reasonable assumption about future inflation. Take that into consideration when figuring out how much money you’ll need to retire comfortably.
Choose the Right Mix of Assets
Your portfolio should include several types of investments. Some, such as annuities, are designed to adjust automatically to account for inflation. A whole life insurance policy can provide you with regular income during retirement.
Investing in stocks can help your portfolio grow significantly over time, but as you get closer to retirement age, you’ll want to shift to assets that are less subject to market volatility. That can give you a greater measure of financial stability when you’re retired.
If retirement is a long way off, putting more money into your 401(k) or IRA every month can help you weather future price hikes. Even increasing your contributions by a small amount can help a lot, thanks to compound interest.
Don’t Rush to Begin Collecting Social Security
Social Security benefits are adjusted to account for cost-of-living increases. Those adjustments can help you deal with inflation, but waiting to collect benefits can provide more of a financial cushion. The longer you wait, the higher your monthly payments will be.
Get Advice From a Professional
A financial planner can help you understand economic trends and how they can impact your retirement. With guidance from a professional, you can select a strategy that accounts for inflation so you’ll be able to afford the lifestyle you want when you’re retired.
Future economic changes, as well as changes in your personal circumstances and plans, might cause you to rethink some of your previous assumptions or decide to modify your asset mix. A financial planner can work with you to ensure that your retirement strategy continues to fit your needs.
