Managing Retirement Savings Amid Rising Inflation

managing retirement savings

As inflation continues to climb, many people are wondering how far their retirement savings will actually get them. Consumer prices rose 8.5% last month compared to the year before. There’s a lot of financial anxiety among Americans. Especially those who are on fixed incomes or already retired. 

Usually, inflation slowly creeps up without people even noticing how much has changed. But with recent surges, inflation is on everybody’s minds. 

Your retirement plan will certainly change when you’ve planned on 3% inflation rates and that rate has doubled and then some. You’re going to need to establish new money-saving strategies as well as make sure you have moved your cash to smart investments to keep up with inflation. 

Are Your Retirement Calculations Accurate?

Many people will calculate their retirement needs based on inflation changes from the past. Inflation hasn’t made dramatic jumps the way it is now for over 30 years. Since 1991 inflation rates haven’t reached 5%. Inflation rates have been less than 3% from 2009 to 2020. 

Retirement calculations haven’t needed to account for an 8% inflation rate for quite some time. Many retirement calculators aren’t taking into account this new high rate of inflation. 

The money you’re putting aside every month may have been enough for someone planning for retirement in past decades but currently, you likely need more aggressive savings and investments to make it through retirement.  

Monitoring Your Rate of Return While Managing Retirement Savings

Small changes in inflation rates equal big changes in your rate of return on investments. The rate of return is the net gain or loss of your initial invested money. 

For example, if your investment is making 6% and inflation is only at 2%, you have a 4% rate of return. If you keep your money where it is and inflation increases to 5% then your rate of return is only 1%

Then imagine if inflation goes up to 7%. Now you’re looking at a negative rate of return. This is how crucial it is to adjust your retirement plan as inflation changes. Rising inflation can make it much harder to retire successfully. 

Protecting Your Retirement Savings Pre-Retirement

If you have many years ahead of you as a worker, then inflation likely won’t be devastating in the long run. Your salary will have time to catch up with the rate of inflation. However, it’s important to continue to push any cash you don’t need in the short term into long-term investments and pensions. 

Leaving money sitting in the bank will always lose its value. With the current state of inflation that money is losing value at record-setting rates. 

managing retirement savings

Protecting Your Retirement Savings After You Retire

If you’re already retired you might want to put your money in investments that can be easily liquidated. You need a broader view of investments so that your money doesn’t sit in the bank. Even sitting for just a few years you’ll lose significant money to inflation. 

Social security payments are adjusted for inflation so you do have that safety. However in retirement, you may have increasing costs for medical care. Another reason to always be pushing money into investment accounts. 

Stock Market Investments

The stock market poses some risks but keeping your money in the bank is also risky. There are certain stocks that experts will recommend for inflationary environments

Real Estate

Real Estate generally increases over time. Rental properties will generate monthly income as well as increase in value for when you sell. The upkeep involved makes this investment not suitable for everyone but many people have used real estate to keep up with inflation.

Series I Savings Bonds

Once you retire, you may be ready to put the risky investments behind you. Series I Savings Bonds (I Bonds) are a very safe investment. These bonds are sold and backed by the U.S. government.

I bonds keep up with inflation. The government can change the rates every six months depending on inflation. However, they can also decrease the interest rate, again, based on inflation.

You can’t get your money out of I bonds if you invested less than a year ago. You also lose some interest gained if you take your money out before it’s been in for five years. But for managing retirement savings that you’ll need in the long-term, it’s a good option. 

retirement savings

Liquidating Assets While Managing Retirement Savings

There are plenty of investments where your cash isn’t increasing to keep up with inflation. Recognizing those situations is essential so that you can move your cash to where it will work for you. 

Life Settlements

One asset that many people fail to realize they have is a life insurance policy. Without realizing the potential of this asset, people can make the mistake of letting their policy lapse or surrendering it for less than it’s worth

Many policies can be sold to investors giving you a lump sum of cash. With a life settlement, you can either use the payout to fund your retirement or medical bills in the short term or you can move the cash to another investment. 

Your policy is ready for a life settlement if:

  • You’re at least 70 years old or have significant health impairments.
  • The face amount of your policy is at least $250 K.
  • Your policy is in force for at least 2-5 years. 

Learning about the types of life insurance policies now can help you come up with a plan for managing retirement savings. Know how to best leverage your policy for a life settlement to increase your retirement savings. At the very least don’t let your policy expire

To find out if your policy qualifies for a life settlement now, use a life settlement calculator. Then you can reach out to professionals to learn more about your options with life settlements. 

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