Regions Bank Private Wealth Management

Protecting Your Retirement Plan Against Inflation

Spikes in prices not only affect today – they can impact your future, too. Here are ways to help protect your financial plans against inflation.

We hear the question often: How will inflation impact my retirement plans?

There is no one, simple answer that applies to everyone. But our experience tells us there are ways to reduce the impacts. But you have to take action.

First, let’s level-set on how inflation affects retirement planning. Many investors think about inflation purely in terms of investing. The idea is that if the value of their portfolio is growing at a rate that’s less than inflation, their returns diminish over time. But it’s important to also remember how inflation affects basic savings and spending, too.

For people who created or modified their retirement plans over a year or two ago, there’s a decent chance their savings strategy and cost-of-living expectations are no longer on target. The result is less spending power during retirement. That is – if you don’t do anything about it.

How to Adjust

There’s nothing we can really do as individuals to stop inflation. Rather, our role is to think about whether we can better plan for the situations we face. It all boils down to a few key actions: 1) Save more, if you can. 2) Adapt your plan. Or 3) Both. We recommend people ask themselves the following:

1. Would a different allocation of investments better position my portfolio for the long term? Your advisor can help you determine if some changes are in order today to preserve your plans for tomorrow.

2. Do I need to rethink my plans for post-retirement housing and travel? This can be a hard question to ask. But it’s better to consider the impacts of inflation now, rather than get closer to retirement without crunching the numbers on what you’ll need to save, how long you’ll need to work, or whether you might want to consider less-expensive options than you previously had in mind.

3. What about increased healthcare expenses in retirement? Consider your levels of insurance, and ask your advisor for guidance on how to best allocate funding for medical needs that may not exist today – but might need to be covered tomorrow.

4. What about charitable giving goals? This is extremely important to many people, and we don’t want any of our clients to start retirement and then realize their savings or investments aren’t enough to provide for others the way they intended. This is another reason why a fresh conversation with your advisor – and consistent reviews over time – can help you determine if adjustments need to be made to your savings strategy, your asset allocation, or your long-term giving plans.

5. What about trusts for future generations? We believe it’s often a good idea to take stock of what you’re setting aside for future generations. Have open and honest conversations with your family and beneficiaries. Make your desires clear, and listen to theirs as well. This can help you determine if your current trust plans are correct – or if they should be updated.

At Regions, we encourage clients to assess their strategies at least annually with their advisors, as well as any time there is a significant shift in their personal life or the economy. If ever there were a time for a fresh review, we believe now – when inflation is at significant highs – is certainly that time.

Ultimately, solutions are unique for each person and should be grounded in an individual’s personal goals, risk tolerance, and other factors. For example, if you know where and how you want to live in retirement, your wealth advisor can calculate how inflation will impact your anticipated housing and lifestyle costs to determine if a new cash flow is required to support it.

Adjusting the Investment Strategy

Remember, preparing for inflation may include increasing monthly contributions to retirement savings, delaying retirement to build a larger nest egg, or adjusting your anticipated lifestyle to reduce expected monthly costs.

Financial advisors can also walk you through certain financing options. One area to consider is leveraging credit rather than personal savings for investments. The interest rate on borrowed money continues to remain low, and for some borrowers it may be less than the current rate of inflation.

That can generate added value. Borrowing money at an interest rate lower than the inflation rate is comparable to getting a discount on the asset being purchased. It is an opportunity to leverage money at sub-inflation rates to support inflation-resistant investments, including rental properties, which are a popular option in a high-inflation economy.

Preparation is Key

Regardless of how you adapt, the key is to be proactive. Indeed, there is no single answer on how inflation impacts retirement planning. There are many answers. Talking to a wealth advisor can help you address your own questions – and provide reassurance that you’re taking steps today to better secure your tomorrow.

This information is general in nature and is not intended to be legal, tax, or financial advice. Although Regions believes this information to be accurate, it cannot ensure that it will remain up to date. Statements or opinions of individuals referenced herein are their own—not Regions’. Consult an appropriate professional concerning your specific situation and irs.gov for current tax rules. Regions, the Regions logo, and the LifeGreen bike are registered trademarks of Regions Bank. The LifeGreen color is a trademark of Regions Bank.

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