Last year, we saw a big increase in the cost of living, with prices going up by 9.1% in June, the highest we’ve seen in 40 years. But since then, inflation has been going down consistently for the past 12 months. It’s getting better, but inflation is still something that happens in most economies. And even though it’s normal, it can still make people worried.
Whether you’re someone who plans every detail of your finances or you’ve hired an expert to help you with your money, you’ve probably thought about how to make sure you have enough money for when you retire. The way you plan for retirement depends on a lot of things, like your personal situation and bigger economic factors like inflation. When you’re getting ready for a time when prices might keep going up, sometimes the best thing to do is stick to your plan and not try to chase after higher returns. In some cases, doing nothing can actually help you deal with inflation.
The world of money is a bit like a plane ride, with some bumpy moments. In a time when prices have gone up and down a lot, it’s really clear that we need to make sure our retirement plans can handle changes in the economy. Just like we can’t stop the bumps during a flight, we can still do things to lessen the impact of economic ups and downs, not just on our money, but also on our peace of mind.
Inflation, much like the bumpy turbulence on a flight, reminds us that there are some things we can’t control. But realizing this fact can actually help us make better financial plans in uncertain times.
Here are five things to keep in mind when you’re looking at your investments during tough economic times:
Evaluate and reevaluate.
When things feel uncertain, it’s natural to want to make quick changes to protect yourself from losing money due to inflation. However, these turbulent times can be a chance to think about your long-term goals. To figure out how much more you should be saving and investing to reach your retirement goals, take a step back and look at your current financial situation. Get some advice from a professional to understand how inflation might affect your financial plans. This way, you can make adjustments if needed or confirm that you’re still on the right track.
Avoid repeating the same strategy.
Don’t assume that what has worked in the past will work again in the same way. The context matters a lot. Take gold, for instance. It’s often seen as a safe bet when prices are rising, but it hasn’t been very reliable in the recent inflationary times. Commercial real estate is another example; it’s usually a stable investment, but with more people working from home after the pandemic, certain sectors have struggled. We recommend that our clients keep a close watch on how investments are performing in this current inflationary period and compare them to the bigger economic picture.
Stick with a tried-and-true diversified portfolio.
When inflation is challenging, you might be tempted to put all your money into one or two markets. But it’s important to stay balanced. Stocks, for instance, tend to perform well during inflationary periods. If you’ve consistently maintained a diversified portfolio and made reasonable adjustments over the years to match market trends, your portfolio is probably more resilient to economic ups and downs than you realize.
Prioritize Generating Income.
When you’re approaching retirement, it’s natural to worry about having enough money to cover your expenses. It’s perfectly fine to have a portfolio that focuses on generating income, but it shouldn’t be your sole objective. Depending on how close you are to retirement, financial advisors should help you strike a balance between creating income for the long term and having cash available for immediate needs.
For instance, if your retirement savings are growing at 10% annually, and you only need 3% of it for your daily expenses, that’s a good situation to be in. It’s crucial for you and your financial advisor to have open discussions to ensure your risk strategy matches your retirement goals and any changes in your plans.
You Have Control Right Now.
Inflation might seem like a scary thing, but the truth is, you have more control over your retirement savings than you might realize. Through careful planning, both in terms of your finances and your career, you can decide when you’ll retire and what your income will be. You have the power to determine your current and future spending habits and how aggressive you want your investment portfolio to be.
Here are some other ways to stay in control of your financial future:
Organize Your Finances: Make sure your accounts and financial documents are well-organized so that you or your loved ones can easily access your assets when needed. Keep your beneficiary information up to date and create a thoughtful estate plan. Being proactive in preparing for the future can reduce stress and protect your investments from factors beyond the economy.
Keep the Conversation Going: It’s important to have open discussions with your loved ones. Set clear expectations about long-term care and inheritance, even though these conversations can be difficult. Having these talks can provide clarity, and fewer surprises during retirement are always a good thing.
Imagine Your Retirement Strategy as a Skilled Pilot: Think of your retirement plan as a skilled pilot navigating through various conditions. While external factors like inflation can make us feel less in control, the strategies mentioned above act as both automatic and co-pilots, helping you confidently steer your financial course. Just as turbulence is a natural part of flying, inflation is a common economic force. Understanding these similarities allows us to prepare better and ensure a smoother journey towards our retirement goals.
Remember, a retirement plan is like a snapshot of where you are at a particular moment in time. It can change, so it needs to be adaptable based on how close you are to retirement, your specific goals, and life’s unexpected twists and turns. With careful planning, your retirement strategy will help protect your legacy.
