There are too many Americans who are not considering the effects of inflation in their retirement planning, according to “How to keep inflation from ruining your retirement,” published in The Statesman. In fifty years inflation has caused the median home price in the United States to go from $11,900 to $170,000. Experts predict that fifty years from now you may not even be able to buy a car for that same $170,000. That is why it is so crucial to account for inflation when planning your retirement, whether you are investing in equity linked CDs, annuities, or another product. Nearly 3/4 of those retiring early consider inflation, but that number drops to just over half when you account for all retirees. It is excellent that so many Americans and their advisors are working rising prices into retirement planning, but there are still too many people that aren’t.
For a basic explanation, inflation trends show a 3% yearly increase in prices. If that trend continues, in ten years a retiree will pay $13 for something that costs $10 today and in twenty years they’ll be paying $18 for the same product. Without accounting for inflation when retirement planning, that retiree will run out of money much faster than they might have anticipated. There are some investments and steps to take to protect yourself from inflation and longevity risk.
Treasury bonds that are adjusted for inflation, such as TIPS, can be a good investment because you receive more income as the Consumer Price Index increases. For those nearing retirement, an immediate annuity with an inflation rider is another good way to protect yourself. Your monthly lifetime payments will increase by a specified amount yearly to account for inflation. Wait as long as you can to start collecting Social Security because the delay could increase your yearly benefit dramatically as prices and interest rates increase. By investing in equities, such as equity linked CDS, indexed annuity products, and others tied to common stocks, you can help avert inflation risk. It is also important to manage interest rate risk in your investments when planning for retirement. Speak with an expert to help manage your inflation and interest rate risks.
