Inflation and Retirement: Five Ways to Soothe Your Worries

Last year, we witnessed a significant year-over-year increase in CPI inflation, reaching a high of 9.1% in June — the highest in four decades. Since then, we have observed a consistent decline in inflation for the past 12 months. Although it’s improving, inflation remains a common phenomenon in most economies. That it’s prevalent — even expected — doesn’t necessarily negate the anxiety it causes on an individual level.

Whether you are a meticulous planner or have hired one to support your financial journey, you’ve likely strategized how best to prepare for your retirement. What that strategy looks like depends on many factors, including those personal to you and broader, macroeconomic forces like inflation. When planning for something like a possible inflationary period, there are times when the best advice may be to stay the course, as chasing performance could lead to trouble. Sometimes, you can fight inflation by not moving at all.

The financial landscape, much like a ride in an airplane, can experience moments of turbulence. In a world where inflation has surged and waned, the need to fortify our retirement plans against economic instability has never been more apparent. Just as we can't eliminate turbulence, we can certainly mitigate its impact — not only financially, but also mentally.

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Much like the jolts of turbulence, inflation reminds us of our limited control over certain variables, and it's this acknowledgment that empowers us to navigate the uncertain skies of financial planning.

Here are five things to consider when reexamining your portfolio during challenging economic times.

1. Assess and reassess.

The unknown makes us worry, and fear drives us to change directions during troubling times. Your gut reaction may be to hedge against inflation-related loss. However, volatile times provide a prime opportunity to revisit your long-term goals. 

To estimate how much more you need to save, invest and accumulate to meet your retirement goals, take a bird’s-eye view of your current financial state and reassess your goals. Work with a professional to determine how current inflation trends affect the path to your financial benchmarks. This way, you can course correct, or determine that you’re still on the best path.

2. Avoid rinse and repeat.

Don’t assume that what has worked well in the past will work again. Environment matters. For example, gold has always been viewed as an inflation-proof purchase. However, it has been inconsistent. Gold hasn’t done well in this most recent inflationary environment. Commercial real estate is also considered a stable investment. But commercial real estate in a post-pandemic work-from-home era has seen some sectors suffer. We advise our clients to keep an eye on the investment trends for this specific inflationary period and compare them against larger macro factors.

3. Maintain the tried-and-true diversified portfolio.

During exceptionally challenging inflationary periods, you may feel tempted to put all your investments into one or two markets. However, moderation is key. Stocks, for example, generally work well during inflation. If you’ve consistently maintained a diversified portfolio — making reasonable adjustments over the years aligned with market trends — then your portfolio is likely more resilient to external economic factors than you think.

4. Focus on yield.

Retirees are typically concerned with cash flow in their golden years. While there’s nothing wrong with having a portfolio tilted toward income, it shouldn’t be your only objective. Depending on how far away retirement is, advisers should work with clients to determine the balance between long-term yield generation and immediate cash flow. 

For example, if a diversified retirement portfolio grows at 10% a year and you need only 3% for living expenses, then you are in a good place. It’s important that clients and financial advisers have an open dialogue to make sure their risk strategy is aligned with their retirement goals and timeline, especially if it’s subject to change.

5. You’re in control, today.

Inflation isn’t the boogeyman. In truth, you have more control over your retirement savings than you think. With the right amount of planning (financially and career-wise), you determine how long you will work for and at what level of income. You are capable of determining the way you spend (now and in the future) and how aggressive you want your portfolio to be.

Other ways to stay in control include organizing accounts and financial paperwork so that you or your loved ones can easily access your assets. Ensure that beneficiary information is up to date and create a thoughtful estate plan. Taking proactive measures to prepare for the future can alleviate stress and protect your portfolio from factors outside of the economy.

In addition to portfolio strategies, keep the conversation open with loved ones. Level-set on expectations regarding long-term care or inheritance, for example. These are tricky conversations, but they will offer clarity — and the fewer surprises you have during retirement, the better.

Envision your retirement strategy as a well-prepared pilot navigating through diverse conditions. While external factors may challenge our perception of control, the strategies outlined above act as both auto- and co-pilot, helping you confidently manage your financial flight path. Just as turbulence cannot be eradicated from the skies, inflation is an intrinsic economic force; yet, understanding their parallels allows us to harness the power of preparation and ensure a smoother journey toward our retirement aspirations.

Remember: A retirement plan is a snapshot of a point in time. It can change at any time and should be adaptable, depending on how far you are from retirement, your specific retirement goals and the unexpected ups and downs of life. If prepared with care, your retirement plan will safeguard your legacy.

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