Will Inflation Derail Your Retirement Plan?

1. Delay retirement to your full retirement age for Social Security

The onslaught of the pandemic changed the thought process around retirement for many people. We’ve seen an increase in the desire to retire early, which affects other aspects of a retirement plan, such as health care costs and helping children with their college education.

If you’re worried about making your money last through retirement, it makes sense to wait until your Social Security full retirement age, which is the age at which you will receive your full Social Security benefit. This is typically 67 for most people.

If you like your job and your career, stay employed and take advantage of lower costs for health care (a big inflation input) and continue to save as much as possible in your 401(k).

If you can’t wait until 67, consider working at least until age 65, so you can take advantage of Medicare.

2. Reconsider some of your post-retirement goals and their costs

One major factor for many is the purchase of a new home, possibly in a location where you may prefer to live. Home prices have been significantly impacted by pandemic-related increases, which should moderate over time. Perhaps delay this goal, or ease into it by renting in your preferred location for a few years after selling your current home.

Also look at what I would term “extraordinary” goals, or larger occasional purchases that occur less frequently, like new car purchases or large trips. Is it possible to perhaps move one of your big international trips to one that is closer to home? Instead of planning for a brand new car every five years, consider a lightly used one that may offer a much better value. Would now be a good time to sell off one of your rental properties? There are many possible solutions for each individual situation. Some of the better financial planning tools allow for quick adjustments to financial goals so that possible tradeoffs can be evaluated. We view this as a mission-critical capability.

3. Reposition your portfolio

Consider including a higher exposure to commodities, dividend-paying stocks, inflation-protected bonds, and publicly traded real estate. This may be a good time to review your overall allocation and confirm whether you are investing appropriately given your time horizon and other factors in your financial plan.

However, keep in mind that while minor adjustments to counteract inflation may be in order, don’t be discouraged by the current market volatility and discard your entire strategy. If you don’t have a well-considered strategy in place, consult an adviser to help you do so.

4. Rethink the cost of higher education

This has become a recurring topic with some of our clients, given the high cost of education and some of the challenges in the current job market. There are resources available to provide assistance in navigating student loan payoff and consolidation where appropriate, such as Gradfin (https://gradfin.com/ (opens in new tab)).

Assuming high levels of debt for your children’s education while also trying to fund a successful retirement can be a significant challenge in a higher-inflation environment. It’s no secret that education costs have skyrocketed over the last few decades, and if overall inflation increases, many will reconsider how to approach this situation. The good news is that, with a little creativity and flexibility, your children can still receive a quality education at a reasonable price.

• One solution is to attend two years of a community college and then transfer to a preferred state school. Many states have articulation programs where public universities will accept credits from community colleges in their state.
• Another solution is to look closely at the many new online and hybrid programs offered by universities. Some of these are offered by top-tier universities and provide valuable diplomas at a fraction of the cost.
• Additionally, as long as the overall cost is reasonable, there’s nothing wrong with students shouldering some of the debt themselves. Education can be classified as “good” debt, as it should enable the student to earn more money over their career.

There are a lot of caveats here, such as degree program, school reputation, etc., but the bottom line is that parents should not sacrifice their own retirement for their children’s education.

5. Seek the advice of a qualified financial adviser

A financial professional can help you build a suitable plan and test out different scenarios. And make sure that you update your plan regularly, taking into account current market conditions and goal changes.

In conclusion, there just hasn’t been enough serious conversation within the financial planning community regarding changing inflation expectations. Don’t get caught by surprise or complacency when seriously considering an upcoming retirement goal. Revisit your assumptions and seek appropriate guidance to ensure that you will have a successful retirement.