FI Personal Finance

Learn How to Beat Inflation and Make Sure Your Retirement is Safe

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Photo by Karolina Grabowska on Pexels

This guest post was written by Lyle Solomon. Lyle has considerable litigation experience as well as substantial hands-on knowledge and expertise in legal analysis and writing. Since 2003, he has been a member of the State Bar of California. In 1998, he graduated from the University of the Pacific’s McGeorge School of Law in Sacramento, California, and now serves as a principal attorney for the Oak View Law Group in California. He has contributed to publications such as Entrepreneur, All Business, US Chamber, Finance Magnates, Next Avenue, and many more.

Learn how to beat inflation and make sure your retirement is safe

Inflation is bad news for most people. Simply put, the increase in prices implies a decrease in our purchasing power. It affects everyone differently by impacting the standard of living, which is directly related to income and expenses.

Every society has two broad groups—the fixed income group and the flexible income group. While inflation leaves the second group in the gaining position, the first group faces a challenging situation. And in such a situation, worrying about retirement is understandable.

This discussion will take you through how to better anticipate and prepare for inflation during retirement.

What you should know about inflation

So ‘inflation’ is here—but have you ever wondered why inflation occurs? There can be three factors responsible for inflation: 

  • A rise in production costs.
  • Increase in demand for products.
  • Change in fiscal policy. 

When the production costs increase due to an increase in prices of raw materials, wages, etc., the supply for those goods declines, although demand remains the same. Thus this ‘additional cost’ is passed on to the consumers, causing inflation. 

Again, when the demand for some product lines increases to meet the supply, their price increases too. When the market for a particular product range increases, its collection tends to decrease. As a result, consumers are ready to pay more for the product than they would have delivered otherwise.

In the third scenario, if the government starts printing more money or cuts down on taxes, the surplus money is usually spent on increasing the standard of living, business expansions, etc. and thus increasing demand. Hence fiscal policy can also play a significant role in causing inflation. 

How does inflation affect us in general?

Inflation affects everyone in different ways. For some, it can be an excellent opportunity, such as investors holding assets in affected markets. However, for others, it can be a problematic experience, such as the everyday consumers.

Even with good savings, the money you saved in the past is not worth more in the future. Consider this example—you have $500 in your savings account with an interest rate of 5% per annum. After five years, you will have $625 in your savings account. Imagine that with an inflation rate of 5%!

From one point of view, you are gaining money. But on the other hand, you are losing your purchasing power.

In addition to the above, inflation affects us in the following ways:

  • A high inflation rate can destroy the purchasing power of consumers over time.

  •  It hurts lower-income consumers disproportionately.

  • It raises interest rates for new borrowers.

  • Higher inflation for a prolonged period can cause a recession.

  • It adversely affects bonds and growth stocks.

However, the effects of inflation are not always harmful, and it has some positive effects too.

  • It lifts economic growth and employment in the short term.

  • It helps to keep deflation in control.

  • It lowers debt service costs.

  • It boosts real estate investments and value stocks.

How to beat inflation in retirement?

Many factors can bring changes in retirement, and it is best to anticipate these and alter plans accordingly. Inflation decreases the value of money, but it doesn’t stop you from making more money.

Here’s how you can do better financial planning to prepare for inflation during retirement.

Money-making strategies

Keep contributing 

Unless you experience a reduction in your income, continue contributing to your retirement savings. In addition, refrain from buying things that are entitled not to your ‘needs’ but ‘wants.’ Instead, be patient and wait a while for the prices to improve in the market.

Be diversified

Diversifying your investment portfolio can be another smart move. Instead of putting all your eggs in one basket, try a mix of different options, depending on your cash flow needs, risk tolerance, time horizons, taxes, etc. 

Consider safe investments 

Investments with the most returns are usually associated with a high level of risk, and it is advisable to consider the safest investment options with high-yielding returns.

Invest in natural resources

Another great option to beat inflation will be to invest in natural resources. Investors who invest in natural resources like oil, steel, natural gas, etc., are on the gaining side when inflation strikes hard. This is because profits from these investments outrun the inflation rate.

Money-saving strategies

In addition to the above money-making strategies, you can also consider some money-saving strategies. Here’s what you can do:

Continue working

There are tons of jobs available in every field of work. Look for what skills you have or what kind of jobs interest you. This will keep you busy while providing you with a source of income in trying times like inflation.

Cut down on additional expenses

Cutting down on additional expenses can be another way to reduce the effect of inflation and save more for retirement. Look around and see what costs you can reduce or do without. It is one of the easiest ways to protect your 401k or RRSP from inflation. 

Reduce your credit card debt 

While credit cards provide us with a wide range of purchasing power, it’s tricky during inflation. Inflation makes it crucial to manage and minimize our credit card spending. If you have too many credit card debts, you should look for ways to reduce your debt and protect yourself from the financial hardship.

Pay off your mortgages

Having your own house during retirement can reduce your expenses significantly. However, it is necessary to pay off your mortgages before retirement when you may not have a strong source of income.

Hold on to cash 

The importance of having an emergency fund cannot be overstated. By keeping a reasonable amount of money aside, you won’t need to worry about tapping into your investments in case of needs.

Account for retirement expenses when planning for retirement

When planning for retirement, it will be helpful to consider all costs you may have for the future. Along with necessary expenses like utility bills, maintenance, taxes, etc., you may also include dining out with family and friends, entertainment expenses, traveling, spending money on grandchildren, etc.

How does inflation affect retirement planning?

On average, seniors spend the most on health care. According to the Centers for Medicare & Medicaid Services, medical expenditures have risen to $4.3 trillion as of 2019. It is expected to surge even more in the future, about $6.8 trillion in 2030.

Although medical expenses are not the only item that can drive up their expenses, they may include housing, traveling, supporting adult children, etc. And inflation is an essential factor that can affect your retirement planning. 

The inflation rate can influence how much your retirement savings will be worth. By understanding how inflation can affect your retirement savings, you can be in a better position to plan your retirement strategies.

A few words of wisdom

The current rise in inflation has many people concerned. Most are unsure of what to expect in the coming future, especially when planning for retirement in today’s uncertain world. This makes it vital to prepare for inflation and all the uncertain scenarios it may bring along in the future.

In addition to considering the above options, you must consult your financial advisor regarding retirement savings tips. They may help you with expert advice on other valuable strategies you could adopt. Analyze every strategy, such as choosing the best ways to reduce your credit card debts, having an emergency fund, paying off your mortgages, etc.

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  • Reply
    Adam (Blind Luck Project)
    August 12, 2022 at 9:47 pm

    Nice post!

    One of the biggest things I do to insulate myself from inflation is to find ways to lock in my recurring costs such as a fixed 30 year home loan. offering a 2 year commitment for services like lawn care, and house keeping in exchange for a fixed rate.

    Owning assets not based in dollars such as a home or other hard asset is always a good move too.

    Hopefully inflation will be over soon!

    • Reply
      August 14, 2022 at 9:18 pm

      Hi Adam—those are such unique ways to stave off inflation. Great ideas! I think flexibility, creativity and planning ahead are key to getting ahead of inflation. As a bonus, the same principles would be helpful for just about any financial purpose (saving, investing, budgeting, retirement, etc.)

      Thanks for taking the time to read and comment!

  • Reply
    September 4, 2022 at 11:19 am

    I am and have always been an optimist. I already see some grocery items going back down a bit. For me, the highest expense is groceries because I enjoy baking and cooking a lot, then sharing the fruits of my labour with family and friends so I make sure I only buy what is on sale. I use Flipp (as advised by Chrissy) to check out the sale flyers and preview the following week’s specials on Wednesdays so that I can still purchase the current sale items if they are no on sale the following week. I live and learn daily……

    • Reply
      September 4, 2022 at 8:24 pm

      Hi Mom—you didn’t need any tips from me for saving on groceries! In fact, I learned many of my money-saving tips from you! I’m also an optimist and have also noticed that food prices are starting to level off or decline. Let’s hope that this is indeed the beginning of a downward trend. 🤞

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