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Inflation and retirement: How to protect your savings




“We did not invest all of Mom’s money in this product,” Cheng said. “We only invested part of her IRA and her inherited IRA. We did this to address market risk, inflation risk and longevity.” (These additional contracts are often expensive, and additional features increase the cost of an annuity contract. The rider for the life benefits added 1.35 percent to the purchase cost of the contract for Cheng’s mother.)

Save and invest. You know this, but it can be repeated. Another solid way to increase savings before retirement is by investing in affordable, diversified equity index funds without commission. Use a cost analyzer to see how much you can save.

“Put away as much as possible” in a combination of 401 (k) s, Roth IRAs and HSAs, said Braun-Bostich. Make sure your pension portfolio is diversified and protected with inflation-protected government bonds (known as TIPS), short-term bonds, floating-rate securities and US and international equities. And if you already have such a portfolio, monitor your progress annually.

“This is not a one-and-done thing,” Braun-Bostich said.

With inflation, the outlook can be deceiving, because short-term single-digit increases do not seem so steep. Although consumer prices fell during the first wave of the pandemic, they escalated as businesses began to reopen this year, widespread supply chain problems emerged and many people returned to work.

Excluding volatile food and energy costs, the consumer price index rose 4.6 per cent in October from the previous year, the highest increase since 1990. It can be compared with an average of about 3 per cent between 1913 and 2020, with notable increases in the 1970s (an average at 7.25 percent) and the 1980s (5.82 percent).

No matter how you look at inflation, you have to buffer your living costs and unforeseen financial shocks before retirement such as job loss, divorce and medical expenses, which certainly makes retirement planning even more challenging. A study from the National Endowment for Financial Education showed that 96 percent of Americans experienced four or more such “income shocks” when they turned 70 years old.

How do you avoid the triple threat of inflation, income shock and nest egg survival? It’s a start to working with a certified financial planner who can diversify your pension portfolio with low-cost index funds, Johnson said. Such a planner will charge you a flat fee or hourly rate based on how much work you need. Do not work with financial advisors, brokers or agents who demand commissions.

Taking every step is shown to give a sense of authority. “When you are young, start planning,” said Eileen Cheng. “You can take out a loan for everything – except retirement.”



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