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  • Writer's pictureMarc Primo

5 ways to prepare your hard-earned savings for inflation

This is an article ‘5 ways to prepare your hard-earned savings for inflation’ by Marc Primo

Most retirees know that preparing ample savings will help bolster their lifestyle needs after decades of work. However, not considering the impact inflation can cause over the years may prove to be a huge mistake. Notwithstanding the increasing cost of living in the coming years can make well-planned retirements futile. Fortunately, it's always possible to turn things around when preparing your hard-earned savings for inflation.

According to the Federal Reserve, 2% is the acceptable inflation rate to help an economy remain steady and healthy. This means that for every buck you save, you get a value of 98 cents the following year, and so on. Every responsible individual who plans for his retirement savings knows that a 2% annual interest rate is essential to sustain his money's purchasing power in the years to come. If the inflation rate increases by more than 2% within a year, finding a financial institution that will give a higher interest rate to keep the same value might be challenging.

With global disruptions such as the COVID-19 pandemic and the Russia-Ukraine war, everyone's economy took a nosedive into a looming recession comparable to the Great Depression. According to one essay, the first quarter of 2020 saw a significant decline in the country's Gross Domestic Product (GDP) at annual rates of 5%, followed by the second quarter's whopping 30%. As today's inflation rate continues to increase, your savings buying power weakens at a quicker pace. The real challenge, however, is that we are still determining how inflation will play out in the near future, considering that we are at the post-pandemic stage. Still, there are a few ways you can consider investment allocations that will help accumulate your savings and keep your purchasing power strong for the years to come.

Catch up with your savings targets

Even if you are over 55 years old, you can still make the proper adjustments with how you save money to help weather the inflation storm. Things can still work for you provided you have about seven times your income saved so that it steadily appreciates to nine times by the time you hit the retirement age of 60. If that's not the case and you find yourself short of the target, consider increasing the amount you put into your savings account to catch up.

Employees who are 50-year-olds and above are allowed to contribute an additional $6,500 to their 401 (k) plans per annum. Aside from this provision, those above 50 can also contribute up to $1000 to both Traditional and Roth IRAs. Planning ahead and keeping your savings targets up-to-date will help you avoid the corrosive effects of high inflation rates for years to come.

Try investing in stocks and bonds

Another way you can catch up with your savings targets is by maximizing your contributions while thinking about potential investments. After all, asset allocation is one of the critical indicators of a healthy financial portfolio, and intelligent decisions on stock returns have remained steadily viable over the years.

In fact, both S&P 500 and Consumer Price Indices will prove that total returns from stocks have weathered long-term inflation throughout the country's financial history. However, you can still predict your future financial results for stock investments. Historically, the longer you invest in stocks, the stronger your portfolio gets, and the more you can add bonds that work well during market ups and downs. Having both stocks and bonds investments can guarantee more substantial purchasing power for the future.

Delay your social security benefits

Retirees can also enjoy immense benefits from their social security contributions. This particular source of income changes according to the prevalent cost of living from year to year, which makes your social security benefits undeniably more reliable in averting inflation impacts, especially after retirement.

The trick is to delay the payments from your benefits if you have enough savings in the bank so you can increase the proportion of your retirement income. In short, as inflation rises, your delayed income payments are also adjusted for a permanent bump in your benefit rates.

Plan your retirement carefully

If you have reached retirement age and can still work part-time jobs or even delay your retirement, there's no reason why you can't add to your current savings by doing just that. Continuous employment can give you more leverage in increasing your retirement savings while providing you with active income to pay off your everyday needs.

Aside from reducing your withdrawals, you get more time to plan your post-retirement phase while taking advantage of compound growth possibilities since your retirement savings continue to increase. Of course, it's always best to consult your financial advisor and doctor if working past your age is a good idea before you delay retirement.

Anticipate reduced spending but keep a moneywise mindset

One study suggests that an individual's rate of spending decreases post-retirement. 70% of today's retirees say they would rather minimize spending to maintain a healthy savings balance that can support them for more years.

Planning how you can adjust your withdrawal rates in your retirement years is a smart way to ensure that you have the future years' cost of living covered. Keeping an eagle eye on how inflation can affect you through the years is winning half the battle. But it's how you can develop a more financially sound mindset on potential investments to appreciate your savings will still be essential. Combining reduced spending and the motivation to earn passively through investments is undoubtedly the way to go if you rely on your retirement savings.

For retirees, inflation is one of the most significant disruptions they may face for years. Planning is good, but the difference lies in carefully considering your options to have ample savings to keep your purchasing power strong when it's time to hang up the gloves.

Building your wealth earlier is always smart, but there is always time for those who need to catch up with their savings targets and consider potential earners and profit. If you are starting now, it might be best to start monitoring where your money goes, how your current savings stack up with your retirement portfolio, and identifying which adjustments you can make while still earning.


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