PRM Consulting

How Inflation Impacts Your Retirement Plans

Washington D.C.

Inflation impacts everyone but retirees and those planning for retirement may find themselves particularly vulnerable and in pursuit of direction on how to navigate the potential adjustments needed to live the retirement life they imagined. Generally, annual inflation averages should be incorporated into retirement planning. But during times of high inflation, everyone should be thinking about how they reconfigure their spending, including retirees. 

A few questions to ask yourself as you navigate preparing for retirement during a period of record inflation are: 

How will inflation affect my 401k or IRA? 

Cash returns do not keep pace with inflation over long periods of time. By diversifying one’s portfolio, retirees can create asset bases that grow over time. Retirees can then rely upon these portfolios to maintain the real principal value of their assets and preserve requisite cash flow distributions to support increasing expenses over time. 

Does inflation hurt retirement? 

Inflation and its effects concern most Americans today. It can hurt every aspect of spending as it reduces spending power as a result of price hikes on food, rent and even medical care. As a retiree, it is often more important to reconsider standard of living during times of high inflation to adjust to the new purchasing power on a fixed income. 

How much do I need to retire with inflation? 

The true cost of retirement often exceeds a retiree’s expectations. A retiree can utilize online retirement calculators or financial professionals in order to gain some perspective on how to prepare for your retirement.  At one time, $1M in retirement funds was the amount touted as a retirement goal. Recent studies have found that Americans will now need closer to $2M to fund their retirement.  As with most things, facts and circumstances are also relevant predictors.  It is important to note that where and how you live play a part in your options and most importantly, you must factor inflation into any calculation of your financial standing in retirement.  

It’s never too late to start a plan.

For those who have not retired and are still working, this is the time to get educated. Use your employer’s retirement education partner as your primary resource to better understand the necessary planning now required for economic changes like inflation on your way to, and in, retirement. And if your employer does not have the retirement education partner needed to keep you informed, suggest that your employer come see us at PRM. We can help!