Protect Your Retirement Savings from Inflation

August 03, 2023

If you're worried about the effects of inflation on your retirement, here are six tips to help you stick to your plan.

  1. Don't Make Sudden Investing Moves

When the stock market drops, it's human nature to want to do something to avoid potentially losing money. But stock market drops are a part of investing. That's why having a plan in place can help you weather the storms. Making moves based on your emotions can hurt your investments long term. Keep in mind that in times of upheaval, trying to time the market is impossible. That's because market timing involves two precise investing decisions: when exactly to get out of the market, and when to get back in.

  1. Review Your Asset Allocation

If you are concerned about your current investment choices, you may want to shift to less risky ones. For example, rebalancing your portfolio by decreasing stock holdings and shifting to more conservative investments, such as bonds and money market accounts, could be a way to build your cash reserves and protect potential gains as you approach retirement. A financial advisor can review your portfolio and offer guidance.

  1. Don't Keep Too Much in Cash

While it's important to keep savings on hand, you don't want to have too much cash lying around because you'll miss out on long-term gains. Keep about three to six months of living expenses in your emergency fund and put the rest into long-term investments. If you want to be more conservative, consider share certificates, which offer better savings rates than typical savings accounts. Annuities also offer a tax-deferred way to save for your future, with features that limit or eliminate risk.

  1. Balance Growth with Risk

If you tend to be risk-averse, becoming too conservative in your investing options can be as problematic as investing too aggressively. Develop an asset mix of stocks, bonds and cash based on your investing timeline, finances and tolerance for risk. One straightforward way to achieve diversification is by investing in mutual funds, which are accounts managed by experts who determine the right mix of stocks and bonds based on their funds' particular objectives.

  1. Calculate Your Retirement Date

If you haven't decided when you'll retire, estimate how much money you'll need to cover the years when you've stopped working. The Social Security Administration's Life Expectancy Calculator, shows the average number of additional years you can expect to live based on your gender and date of birth. Compare this figure with your retirement savings and anticipated retirement income to gauge whether you'll have enough money to last. Even if circumstances change, you have a baseline to go by and can adjust your investments as needed.

  1. Stay Invested

Checking your portfolio daily can make the stock market's gyrations hard to stomach. Stick with your investing strategy and understand that the market will rebound.  The stock market will continue to be volatile, so keep a long-term perspective. If you don't sell anything, the losses in your portfolio will only be paper losses.