{"id":9122,"date":"2022-02-26T17:03:48","date_gmt":"2022-02-26T21:03:48","guid":{"rendered":"https:\/\/kerryhannon.com\/?p=9122"},"modified":"2022-02-26T17:06:51","modified_gmt":"2022-02-26T21:06:51","slug":"how-to-manage-inflation-in-retirement","status":"publish","type":"post","link":"https:\/\/kerryhannon.com\/?p=9122","title":{"rendered":"How to manage inflation in retirement"},"content":{"rendered":"
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
\n
<\/div>\n
<\/header>\n<\/header>\n
\n
\n
\n
To figure out if a client has enough money socked away for retirement, Stephanie McCullough, founder and chief executive of Berwyn, Pa.-based <\/span>Sofia Financial,<\/a>\u00a0runs a computer program to calculate and stress test individual situations, including scenarios with higher inflation.<\/span><\/div>\n<\/div>\n<\/div>\n<\/div>\n
\n

\u201cFor so long the default inflation assumption of the software program I use was 2.25%,\u201d McCullough said. \u201cI have the ability to move it higher, but it doesn\u2019t go anywhere near as high as 7%,\u201d where the latest reading on consumer prices clocked in.<\/p>\n

\u201cEven at 4%, when you\u2019re looking at 20 to 30 years in retirement, that can really get you,\u201d she said.<\/p>\n

Read on Yahoo Finance<\/a><\/strong><\/p>\n

And that\u2019s the hitch with being a retiree on a fixed income \u2014 it’s typically a set income stream. But living expenses climb with inflation, so investment income must do so, too.<\/p>\n

Here\u2019s how retirees should face the highest inflation in 40 years.<\/p>\n

Find ways to get lean<\/strong><\/h2>\n

McCullough\u2019s mantra for her clients is to live simply.<\/p>\n

\u201cIt\u2019s not necessarily easy,\u201d she said. \u201cTry to keep your essential fixed expenses as low as possible, so that when things turn against you, whether it be poor investment performance, unexpected medical bills, or higher inflation, you can pare back the discretionary spending to stay afloat.\u201d<\/p>\n

\u201cThe less we need, the more sustainable our retirement,\u201d she added.<\/p>\n

Don\u2019t be too risk-averse<\/strong><\/h2>\n

It may be counterintuitive, but \u201cthe anxiety over inflation actually argues for making sure your investment strategy is not too conservative,\u201d McCullough said. \u201cBecause over the longer time frames, the stock market does a better job of keeping up with inflation than more conservative choices.\u201d<\/p>\n

Even what she describes as a \u201cmoderate portfolio\u201d \u2014 60% stocks and 40% bonds \u2014 historically has kept up and even surpassed inflation,\u201d she said.<\/p>\n

\n
Danielle Howard of <\/span>Wealth by Design<\/a>\u00a0in Basalt, Colo., agreed. With the Federal Reserve set to raise interest rates, though, \u201cclients need to understand that a bond portfolio has more inherent risk right now for retirees who thought they were supposed to move to more fixed income in retirement,\u201d Howard said. \u201cThe combination of inflation and rising interest rates will be painful.\u201d<\/span><\/div>\n<\/div>\n

How to stick with stocks<\/strong><\/h2>\n

There are a variety of ways to \u201ctweak based on each personal situation,\u201d Howard said. \u201cThere is no pat answer that is a fit for all. It can be everything from a shift to more dividend producing large cap stocks, alternative investments, or annuities distributions that address fixed expenses.\u201d<\/p>\n

That doesn\u2019t mean someone needs to cherry pick individual stocks. A Standard & Poor’s 500 index fund, an Exchange Traded Fund that tracks the S&P 500 or a total U.S. stock market index fund can provide the growth needed to keep pace with inflation.<\/p>\n

Many S&P 500 stocks also pay dividends. So unlike bonds, they provide a twofer: On top of investment returns, they also provide income with cash dividends (the S&P 500’s dividend yield, however, is now a paltry 1.27%, compared to 1.38% last month and 1.55% last year. This is lower than\u00a0the long-term average\u00a0<\/a>of 1.86%).<\/p>\n

Go brick-and-mortar, sort of<\/strong><\/h2>\n

The key is to \u201cstay invested,\u201d said\u00a0Rob Williams,<\/a>\u00a0managing director of financial planning, retirement income and wealth management at Schwab Center for Financial Research.<\/p>\n

Real estate investment trusts or REITS (stocks of companies that own or manage properties) are attractive as a way to buttress inflation, Williams said. And that includes ETFs and mutual funds specializing in real estate securities.<\/p>\n

Currently, the average REIT dividend yields about 3%, nearly twice the average yield on the S&P 500. However, some REITs offer even bigger dividend yields of around 4% to 5%, Williams added.<\/p>\n

I-Bonds to the rescue<\/strong><\/h2>\n

Investing in I savings bonds can be a smart move for non-retirement accounts when the cost of living skyrockets. There\u2019s a minimum electronic purchase of $25, and they are now paying 7.12%.<\/p>\n

Plus, I bonds are guaranteed to keep pace with inflation. They earn interest for 30 years or until they are cashed in, whichever comes first. If they\u2019re cashed in before five years, however, the interest from the previous three months is lost.<\/p>\n

To learn about how to purchase savings bonds, go to\u00a0TreasuryDirect.<\/a><\/p>\n

Delay Social Security<\/strong><\/h2>\n

Finally, if you\u2019re between 62 and 70 and haven’t started taking your Social Security benefit, wait if you can.\u00a0<\/strong>Social Security’s rules essentially give you an 8% bigger benefit for each year you defer claiming benefits after your Full Retirement Age (currently 66 to 67), until age 70. Put another way, if you’re now 66 and wait until 70 to start claiming, you’ll see 32% larger benefits than if you filed at your Full Retirement Age.<\/p>\n

\u201cIt\u2019s not all doom and gloom,\u201d said Phil Michalowski, head of annuity products at MassMutual. \u201cBut retirees should reassess their assets, risk exposure, expenses, and how much retirement income they ultimately need. Those near retirement may choose to work a little longer.\u201d<\/p>\n

If possible, find a fee-only financial adviser, who is also a fiduciary \u2014 a professional required to put your interests first, to help navigate the new economic landscape. This kind of an adviser will take a big-picture approach to guide your financial life in retirement and calm your nerves.<\/p>\n

\n
\n
<\/div>\n<\/div>\n
<\/div>
\"\"<\/a>BY Kerry Hannon<\/a><\/span><\/strong><\/figcaption><\/figure>\n

Kerry is a Senior Reporter and Columnist at Yahoo Money. Follow her on Twitter<\/em>\u00a0@kerryhannon<\/em><\/a><\/p>\n

Read the latest personal finance trends and news from Yahoo Money.<\/strong><\/a><\/p>\n

Follow Yahoo Finance on<\/em><\/strong>\u00a0Twitter<\/em><\/strong><\/a>,<\/em><\/strong>\u00a0Instagram<\/em><\/strong><\/a>,<\/em><\/strong>\u00a0YouTube<\/em><\/strong><\/a>,<\/em><\/strong>\u00a0Facebook<\/em><\/strong><\/a>,<\/em><\/strong>\u00a0Flipboard<\/em><\/strong><\/a>, and<\/em><\/strong>\u00a0LinkedI<\/em><\/strong><\/a>n.<\/em><\/strong><\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/article>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n

\n
\n