Worried About Inflation? You Can Help Protect Yourself From Its Impact

Delaying major purchases can help shield present you, and future you could benefit from continuing to invest and contribute to your retirement plans.

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(Image credit: Getty Images)

Inflation doesn’t go away magically, but there are ways to help protect yourself, now and later, from its impact.

The Federal Reserve raising interest rates is a limited tool for combating inflation. Hiking up rates also takes time to affect the broader economy. Experts say inflation will be here for a while – possibly until the end of next year.

That’s what consumers expect, too. The vast majority of Americans (80%) worry that rising inflation will continue to have a negative impact on the purchasing power of their income in the next six months, according to the most recent Quarterly Market Perceptions Study from Allianz Life.(1)

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What’s concerning is how many Americans seem unprepared for this period of historic inflation. More than half (54%) of respondents said they have stopped or reduced retirement savings due to inflation. And 43% said they have had to dip into their retirement savings because of rising inflation.

Social Security Among Lifetime Benefits That Help Offset Inflation

One big signal of the effect of inflation is the almost unprecedented cost-of-living adjustment made to Social Security payments this year. Social Security payments will increase nearly 8.7% next year. That will be the largest increase to Social Security checks since 1981, according to the Social Security Administration.

This makes Social Security one of the only benefits people receive in their lifetime that may help to offset inflation. Some annuity products also have the ability to increase income payments to mitigate the effect of inflation.

Even if you are eligible but aren’t collecting Social Security yet, you’re not missing out on the increase. Don’t panic and think you better start claiming it to cash in. This increase, and other future cost-of-living adjustments, will be added to your estimated future benefits if you are age 62 or older.

Consumer Behavior Affects Inflation

In the months ahead, the way inflation moderates over time will, in part, depend on the actions of everyday consumers. If we expect inflation to continue, and act as if it will, the power of a dollar will keep decreasing. It can be a self-fulfilling prophecy.

Here, we’ll talk about what you can do in the short term and looking ahead into your future to protect yourself from inflation risk.

What You Can Do in the Short Term

Here’s the thing – how long we experience high inflation depends on consumer behavior. People, in general, are still spending a lot of money even though the Federal Reserve has increased interest rates.

A good way to keep your finances in check during times of inflation is to delay major purchases. This also helps you avoid taking on new debt.

At the same time, a lot of products are about to be marked down. During the height of the COVID-19 pandemic, Americans bought a lot of consumer goods. Many of the big-box stores didn’t have enough supply of things like TVs. And people who were spending almost all their time at home wanted new televisions.

Retailers ordered more inventory, but with the pandemic subsiding now, fewer people are excited to buy a new TV. So, retailers have a glut of inventory that will be put on sale so it will sell.

Even though it’s tempting to buy a TV on sale at a low price, think before you buy. It is more important to do boring things with your money, like make sure you have a solid cash reserve, and avoid paying interest on balances on credit cards.

Remember this – just because you bought it on sale does not mean you saved money. You spent money! And if you buy it on a credit card, the purchase could end up costing you more than the original price.

Still, short-term actions like no-spend months won’t set you up for long-term financial well-being if this record inflation continues.

What You Can Do in the Long Term

Inflation isn’t going to go away tomorrow. You must begin to help protect yourself from inflation risk. Three in four Americans (75%) said in the Allianz study that they are worried about the rising cost of living affecting their retirement plans. You don’t want to have to work longer than you planned or have to take on a second job.

Consider continuing to invest, contributing to your 401(k), and making other financial decisions on behalf of your future self. The latest Allianz Life study found that the youngest age cohort – Millennials – were the most likely to say they had stopped or reduced retirement savings because of inflation. While 65% of Millennials said they had reduced or stopped retirement savings, 59% of Gen Xers and 40% of Boomers said the same.

Since Millennials have more time until retirement, the money saved now is even more important, because it will have longer to grow. These are key saving years.

Now may also be a good time to meet with a financial professional. They can help you develop a strategy to help address the effects of inflation now and help set you up for a strong financial future. You will want to examine how your investments can help maintain your purchasing power over time and discuss the asset mix in your portfolio.

Planning for the future is critical. Talk to a financial professional about adding some protection into your portfolio to help mitigate the risk of long-term inflation from affecting your retirement.

(1) Allianz Life conducted an online survey, the 2022 Q3 Quarterly Market Perceptions Study, in September 2022 with a nationally representative sample of 1,004 respondents age 18+.

This content is for general educational purposes only. It is not, however, intended to provide fiduciary, tax or legal advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement. Please note that Allianz Life Insurance Company of North America, its affiliated companies, and their representatives and employees do not give fiduciary, tax or legal advice or advice related to social security or Medicare. Clients are encouraged to consult their tax advisor or attorney or Social Security Administration (SSA) office for their particular situation.

Guarantees are backed by the financial strength and claims-paying ability of Allianz Life Insurance Company of North America. Variable annuity guarantees do not apply to the performance of the variable subaccounts, which will fluctuate with market conditions.

Products are issued by Allianz Life Insurance Company of North America. Variable products are distributed by its affiliate, Allianz Life Financial Services, LLC, member FINRA, 5701 Golden Hills Drive, Minneapolis, MN 55416-1297. 800.542.5427 www.allianzlife.com


This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Kelly LaVigne, J.D.
Vice President, Advanced Markets, Allianz Life

Kelly LaVigne is vice president of advanced markets for Allianz Life Insurance Co., where he is responsible for the development of programs that assist financial professionals in serving clients with retirement, estate planning and tax-related strategies.