Savant Wealth Management

With the U.S.’s annual inflation rate at its highest since 1982, it may be difficult to think about leaving the workforce these days. If you’ve put off the idea of retiring until the economy recovers, you’re not alone. A November 2021 study by the Nationwide Retirement Institute found that 30% of survey participants aged 65 and over already planned to delay retirement because of the COVID-19 pandemic. About half said they were concerned about market volatility (51%), managing lifestyle and expenses (50%), and outliving their income in retirement (48%).

But maybe you decided to move ahead with your retirement plans, thinking that COVID rates were stabilizing and things might get back to normal soon. Then Russia invaded Ukraine. Inflation persists. Interest rates, which are rising, are still low. Your grocery bill, which used to cost about $150 per week, now costs over $200. A fill-up at the gas station that used to be $30 now costs more than $50. And now you wonder: Do we have really enough to make it through potentially 30 years of retirement?

While it’s true that inflation can eat away at the value of your retirement savings, it’s important to put it into perspective. If you are in your sixties, you probably remember The Great Inflation, which lasted from 1965 to 1982 and peaked at more than 14% — nearly double the 8.5% rate we experienced in March. The Federal Reserve has raised interest rates once this year and still has levers it can pull to help ease inflation going forward. In the meantime, however, you can take steps to help minimize inflation’s impact on your savings, including:

#1 Review your expenses.

While retirement gives you the free time to pursue hobbies and interests you couldn’t while working, you may be able to find places to save. Track your spending for a month or two to determine how much you’re paying for essentials, like food and utilities, and how much you’re spending on extras. Make a game of trying to find less-expensive entertainment alternatives, for example, or juggle timelines for your next vacation to take advantage of a special offer or seasonal discounts.

#2 Spend cash before tapping investments.

If you have substantial cash reserves, it may make sense to tap those dollars first before dipping into your investment portfolio. Keeping money in a diversified portfolio during retirement means you will still have an opportunity for your investments to grow. Your financial advisor can address any concerns about risk, but some risk is necessary to gain the returns necessary to outpace inflation over time.

#3 Consider downsizing or moving to a less-expensive location.

If moving in retirement – to be near grandchildren, or to experience a different part of the world – was already in your plan, this could be an appropriate time to put your plan in motion. But do the math first! The process of moving to a different home can be expensive if you need new furniture, window coverings, landscaping, or extensive remodeling to make your new house into a home you’ll enjoy. Also consider the total cost of living in the new location of your dreams. Are property taxes lower, but sales taxes much higher? If your new state has no state income tax, how do other taxes offset it? Is the area hurricane or earthquake-prone? Be sure to check insurance rates for the area.

#4 Pay down debt.

Many retirees still pay mortgages and car loans, have credit card debt, and even have outstanding student loans. Focus on getting out of debt as quickly as possible. Convert adjustable-rate mortgages to ones with fixed rates before interest rates continue to rise. Refinance loans if you can find a lower rate and low or no closing costs. Transfer credit-card balances to new cards with lower interest rates. Again, do your homework to make sure the transaction you’re considering will actually save you money.

#5 Consider working again.

Even a part-time job, or occasional consulting, can take the edge off a financial crunch in retirement, and there’s no shortage of available jobs at the moment – more than 11 million in February. You can use the money to cover your day-to-day expenses, help cover medical expenses, or invest for the longer term.

Before doing anything, though, be sure to consult with your financial advisor to ensure you’re making the best decisions for your financial situation. Your advisor may even have additional suggestions to help you gain peace of mind and enjoy your retirement, knowing that you have a plan in place to handle inflation.

About Savant Wealth Management

Savant Wealth Management is a leading independent, nationally recognized, fee-only firm serving clients for over 30 years. As a trusted advisor, Savant Wealth Management offers investment management, financial planning, retirement plan and family office services to financially established individuals and institutions. Savant also offers corporate accounting, tax preparation, payroll and consulting through its affiliate, Savant Tax & Consulting.

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