The theme this week on the One Minute Retirement Tip is the biggest money worries for retirees. 

Today, I’m talking about another big money worry for retirees - inflation. Should you worry about inflation? 

I actually dedicated an entire week’s worth of tips to this topic in August 2020, so if you’re really spooked about inflation, go back and listen to episodes 659-665. MY answer about whether or not you should worry about inflation hasn’t changed since last August: 

I don’t think inflation is a concern right now. Although more news articles and headlines have come out recently on higher inflation as it has picked up in recent weeks, along with higher interest rates. 

But while we’re still in recovery mode from Covid, I don’t think inflation is a concern in the near-term. But should you be concerned about it over the span of your retirement? You betcha. The problem of inflation for retirees is that the cost of everything continues to go up, but your income generally cannot keep pace. Increases in social security to account for inflation are pretty dismal, so you’re going to need your investment portfolio to continue to grow to keep up with the rising cost of everything in retirement. 

Inflation is a concern even if we have low or moderate inflation during your retirement years, but it can be devastating if inflation is even in the mid to high single digits. Either your portfolio withdrawals will need to go up, or you’ll have to cut back on your lifestyle and expenses in retirement. Either way, it’s not a good situation. 

Rather than sit there biting your nails, there are a few practical steps you can take to protect yourself and your retirement portfolio against higher inflation: 

The key principle to remember here is that what you invest in must have growth potential, so that your dollars will grow over time to keep up with inflation. Holding cash, savings, money market accounts, CDs, and low-yielding bonds aren’t good protectors against higher inflation, because the growth rate just can’t keep pace with inflation.

That doesn’t mean you shouldn’t own any bonds, CDs, or cash, but owning too much of these assets is problematic. 

In addition to not owning too much in bonds, there are a few types of investments that actually do well when inflation is higher. Having some of your retirement portfolio invested in these areas can help insulate you from the ravages of higher inflation.

The most obvious and well-known protection against inflation is gold and other precious metals. But gold’s ability to protect you against higher inflation is limited, because owning too much gold comes with it’s own set of problems. 

An often overlooked, but in my opinion a better protector against inflation is your stock portfolio. Yes, just by maintaining a meaningful % of stocks in your portfolio, you can protect yourself against inflation, since stock market returns tend to outpace inflation by a wide margin over time. 

TIPS or Treasury Inflation-Protected Securities are US Govt bonds that have an inflation protection component to them are also a great hedge against inflation, and lastly there’s real estate. 

That’s it for today. Thanks for listening. My name is Ashley Micciche and this is the One Minute Retirement Tip. 

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