Weekend Reading: Build an Inflation Hedge Around Retirement

Posted: 03/25/2022

|Kiplinger |Inflation

This article appears as part of Casey Weade's Weekend Reading for Retirees series. Every Friday, Casey highlights four hand-picked articles on trending retirement topics and delivers them straight to your email inbox. Get on the list here.

Weekend Reading

One of the biggest fears amongst retirees is running out of money; throw in a stretch of soaring inflation, and you have a recipe for many to feel an elevated level of concern.

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One of the biggest fears amongst retirees is running out of money; throw in a stretch of soaring inflation, and you have a recipe for many to feel an elevated level of concern.

High cost hedging: Not only do today’s high prices force retirees to stretch fixed incomes, but they also must ensure their portfolios are keeping pace with a higher cost of living. I’m not sure where we will go from here, and the Fed doesn’t have a crystal ball either, but regardless of where inflation is heading, your retirement plan should be prepared for anything. A few strategies featured here to help protect your nest egg include:

📌 Padded budgets: When it comes to your annual spending budget and spending projections for the future, you can build in a higher inflation rate and better (more conservatively) forecast how much income you might need over the coming years. You also might consider making larger purchases earlier, as significant inflation can lead to a lasting ripple effect, and take advantage of any available cash back options.

📌 Compensating for bond risks: Fixed-income investments, such as bonds and CDs, have a more difficult time keeping up with rising prices, and in the event of rising interest rates, the prices of existing bonds also fall (meaning loss in value). If you utilize bonds for income, consider a bond ladder strategy amongst bonds of varied maturity, or Treasury inflation-protected securities.

📌 Identifying inflation-proof investments: Looking beyond bonds, some other inflation-offsetting options include dividend stocks, mutual and exchanged-traded funds, real estate investment trusts, fixed index annuities and the classic inflation hedge: Gold.

My thoughts: You should certainly consider your options when it comes to hedging your inflation risk in retirement. There might be a lot of more options than you are aware of.

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