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I’m sure I speak for many when I say that inflation is top of mind these days. Everything is more expensive – gas, food and many other necessities. This is particularly concerning for folks like me, who are considering retirement in the coming years. How do you advise investors, especially retirees, to prepare for what may be a prolonged environment of high inflation? Zei Gezunt!

Elaine S. Grossman
Jamaica Estates, NY

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Inflation jumped to 7.9 percent over the past year, which is the highest spike since 1982. For those less familiar with the term, inflation is when prices of goods and services rise, thereby decreasing how much you can buy with the same amount of money. Take as an example a weekly grocery bill. If yours was typically $500, with inflation the same items may now cost $700 per week. Spending the same $500 would result in buying fewer items. Essentially, high inflation lowers one’s purchasing power, and everyone is feeling that impact when buying food or filling up at the pump.

Inflation is obviously concerning to most Americans. However, it’s particularly concerning to those in retirement who live on a fixed income and can’t easily increase their cash flow. It may even be more of a concern for Orthodox families who already struggle with the high cost to maintain their lifestyle. It’s worth exploring how inflation may impact your nest egg and strategies to consider.

If you have 10-plus years until you need your funds: If you have a relatively long time until you need your money, then inflation should not keep you up at night. There are three reasons why:

  • 1) Income growth: You still have a paycheck that should rise as the cost of living increases. This is a natural hedge against inflation.
  • 2) Aggressive portfolio: If you have a long time horizon, you may be more heavily invested in stocks rather than bonds or cash. Historically, the stock market’s long-term returns have outpaced inflation.
  • 3) Time: I find the phrase “this too shall pass” to be very relevant. Markets move in cycles. While this inflationary environment is challenging for many investors, eventually it should pass. If you have a long timeframe, rest assured that inflation is not a permanent problem. In time, it should come under control.

If approaching retirement: If you are a few years from retirement or in retirement, inflation becomes a bigger concern. You may no longer have a paycheck, can’t take as much risk with your portfolio, and don’t necessarily have the luxury of waiting out a long inflationary cycle. Here are some actionable ideas and perspective:

  • 1) Delay claiming Social Security: If you have yet to claim Social Security benefits, then holding off may be a sensible approach to help offset the impact of inflation. Today, Full Retirement Age (FRA) for a retiree to get their full benefit is 66. One can claim Social Security as early as age 62, but anything before FRA comes with a reduction in benefits up to 30 percent. However, Social Security will add an additional eight percent delayed retirement credit to your monthly payout for each year, up until age 70, if you hold off on claiming the benefits. That’s an annual return of eight percent for deferral after your FRA.

Social Security has the added benefit of a cost-of-living adjustment (COLA), which has averaged about 1.5 percent a year over the past ten years. While the COLA increases usually are not enough to keep up with inflation, there are not many other forms of income in retirement planning that also adjust for the increasing cost of living. Contacting your tax advisor on claiming strategies may be helpful.

  • 2) Work longer: This is always an unpopular suggestion, but simply working longer and continuing to receive a paycheck (at least until this high inflation subsides), can remove most of your inflationary concerns.
  • 3) Accelerate certain financial decisions: In some ways, inflation may benefit you. If you were planning to downsize your home, locking in prices now when the housing market skyrocketed may be sensible. If you were planning to get rid of one car, selling now while the used car market has exploded in value may also make sense. If you live in a high cost of living area, selling your home while prices shot up and relocating to a cheaper locale may be advantageous to your situation. Go through your plan for retirement and determine if acting now, rather than later, may pay off.
  • 4) Asset level: After decades of working, you may have accumulated sufficient funds where a bout of high inflation shouldn’t be a concern. You may have to spend more money than you initially intended, but if your nest egg is sufficient, this will have no material impact on your finances or lifestyle.

While inflation is a top news headline with the financial media, whose job it is to get people thinking about it 24/7, it’s important to remember that inflation impacts everybody in different ways. Sure, if you commute a long distance to work every day, then the rising price of gas is going to hit your wallet. If you are in the market for a new car this year, then you will likely pay significantly more than in previous years. However, if you work from home and don’t have any major financial outlays, then inflation may be less impactful. The key is to focus on your personal inflation situation and work out a strategy to plan for it. Like with other aspects in life, with proper planning, you should be okay.

Readers are encouraged to ask their personal financial questions, which may be quoted from and addressed in a future column, by emailing shenkman.jonathan@gmail.com.

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Jonathan I. Shenkman, AIF® is the President of Shenkman Wealth Management and serves as a financial advisor and portfolio manager for his clients. In this role he acts in a fiduciary capacity to help his clients achieve their financial goals. He publishes regularly in financial periodicals such as Barron’s, CNBC, Forbes, Kiplinger, and The Wall Street Journal. He also hosts numerous webinars on various wealth management topics. Jonathan lives in West Hempstead with his family. You can follow Jonathan on Twitter/YouTube @ShenkmanOnMoney.