Ask the Retirement Expert: I’m Concerned About Inflation in Retirement. What Can I Do?
Each week our Northwestern Mutual retirement experts answer your questions. This week’s question:
I’m concerned about inflation in retirement. What can I do?
With life expectancies continuing to increase, inflation—which means that things will cost more—is definitely a retirement risk if your savings can’t provide additional income needed to keep up with increasing costs. Basically that means you could lose purchasing power.
The way to be mindful of inflation in retirement is similar to how you would address that risk during the accumulation phase: Look at the time horizon of your goals, your risk tolerance, your ongoing liquidity needs and any cash buffer you may want to set up. It’s important to keep enough invested in a way it can grow, perhaps investments in the stock market. However, in retirement, many people want to avoid the kinds of risks that come with growth assets. This is where diversified assets can help. Having a cash buffer and a source of guaranteed income from something like Social Security, a pension or an annuity can help you avoid tapping into those longer-term growth assets at times when the market is down. That allows you to weather downturns in the market and take advantage of gains from stocks if prices rise.
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No investment strategy can guarantee a profit or protect against a loss.