Aim To Protect Your Retirement Against Inflation

Our hosts are Buhman Wealth Group financial advisors who , for more than two decades , have provided financial leadership for those they serve .

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So every episode we focus on various topics , specific questions in the financial realm that a lot of people share , and we drill down on a specific topic each episode .

So today's episode is going to revolve around the volatility in the markets , inflation that crazy eye word that became a household term a couple years ago and it's kind of stuck around for a while and the Federal Reserve , otherwise known as the Fed for short . So that word inflation throughout 2022 and beyond , as I said , has become kind of a household word .

I mean , it's always been there , but it's really in our face now . We're still seeing much of that record high inflation in today's markets and it may seem like it's here to stay for a while , at least in the short term . So how can we begin to navigate this new environment that we find ourselves in , and how does it affect our retirement plans ?

We're going to cover this a bit today , so let's jump right in the Federal Reserve chair . His name is Jerome Powell , and he has said that he doesn't predict or believe that a recession is on the horizon .

But despite him saying that , inflation certainly seems to be a little stickier than they'd initially anticipated , the thought was a couple years ago , starting 2022 , portion of 2021 , was that you'd hear that term transitory Inflation is transitory . It's not here to stay , it's just temporary , and we know now that that's not the case . So what does this mean ?

It could mean the interest rates will stay likely where they are or maybe come down a little slower than we'd initially thought or hoped . So why does this matter ?

Well , it matters to all of us , but really , for retirees specifically , your market exposed accounts may be providing you with some much needed income , maybe to supplement Social Security or pension or other income streams .

Market volatility can turn that income into a question mark , and so now , at the state of the market at the time that we retire is really out of our control . We can't choose how the market's going to be when we retire that's out of our control .

But what is in our control is having a plan to mitigate the risk and to protect what you've worked so hard to earn during your working years . So , with higher interest rates or rates just coming down slower than we thought , what does all that mean ?

Well , high rates could mean more market volatility or even downturns in the market , which can directly affect those market exposed accounts like your IRAs , 401ks , roth IRAs or other brokerage accounts . If we're relying on those for income , they're invested in the market .

High rates and volatile stock market can certainly affect our withdrawals that we're relying on no-transcript . But recession remains a possibility if the current market and inflation conditions stay the same and the Fed is forced to keep those rates high .

It's a careful balance of trying to mitigate inflation by raising rates but not dropping them back too soon or too fast , and so that's kind of the conundrum that the Federal Reserve is in right now .

So what are some things that we can do in a higher interest rate environment to be aware of some of these factors and in some cases even take advantage of higher rates . Right , higher rates are generally not a fun thing if we're borrowers or we're borrowing money taking out a loan , but on the flip side , how do we take advantage of that ?

So the first thing , some things that we can kind of be cognizant of , are maybe just increasing our fixed income securities in our portfolio . So retirees generally have a higher allocation , a higher percentage of fixed income securities once they retire .

Things like bonds , things to provide a steady income in a rising interest rate environment might be prudent for retirees to consider gradually increasing their interest rate and then gradually increasing those bond allocations , the bond percentages , maybe with shorter maturities , shorter term bonds that could provide some better yields as the interest rates continue to increase

or at least stay the same . Another option is diversifying income sources . So if you are retired , you can look to diversify some of the sources that you rely on for income .

You know , maybe this is a combination of fixed income investments like bonds or some dividend paying stocks , or even something like a REIT , a real estate investment trust , even an annuity that can guarantee an income stream for life , and we'll come back to these , come back to the annuities . So another thing is maybe to consider some inflation protection right .

Inflation one of the things it does is it erodes our purchasing power over time , especially for those that are retired and living on a fixed income . So retirees can consider investing in inflation protected securities like TIPS and TIPS is an acronym that stands for Treasury , inflation Protected Securities .

It does just that , so its sole job is to essentially retain purchasing power despite any inflation on the back end . So another thing you can do is look into something like real estate that actually tends to perform pretty well during high inflationary periods .

So circling back quickly to annuities , annuities can be something to look at , maybe an annuity with an increasing payout . Some annuities do offer payouts that increase over time or are tied to inflation . So if you find yourself retired , you could consider an annuity with an inflation-adjusted payout .

That might help mitigate some of the effects of these higher interest rates and inflation as a whole . Another thing is just to look at withdrawal strategy . So maybe getting a little creative and dynamic with your withdrawal strategy from your retirement accounts so you can look to adjust right In periods of rising interest rates .

Maybe it's worth looking at dialing back some of your withdrawals and lowering the percentage to allow those portfolio accounts to grow and appreciate again by dialing up a different income stream . Lastly , here's one of the things where we can kind of take advantage of the high interest rates .

I mean , usually it's not a great thing , right , as I said , if we're a borrower it's not a great thing , but on the flip side , if we can take advantage of that in a positive way for us , we should , while the interest rates are the way they are currently .

So if you have extra cash on the sidelines , maybe something you've kept for an emergency fund or just in savings and it's earning pennies in interest , look at something called a high yield savings account . Now , you can't find them at every bank , but it's worth looking into .

So that acronym H-Y-S-A or high yield savings account , and it does exactly what it sounds like . Some of these are offering upwards of four and a half to 5% , maybe even a little more , in interest for money that's otherwise just sitting in savings . So this is a way we can let the high interest rate environment work for us as opposed to against us .

So , coming back to annuities again , this can be a great option for a portion of someone's portfolio .

You know an annuity , especially one with an income rider , can , as I said , create a stream of income very similar to a pension or social security that will continue to pay you for the rest of your life , even after that account value has been depleted via withdrawals down to zero .

So this can be a powerful tool for those who don't want to be subject to the market turbulence and volatility and uncertainty when it comes to drawing down on your IRS or other retirement accounts . If you're not familiar with how these types of annuities work , I encourage you to speak with your financial advisor and ask them about these .

See if it makes sense in your specific plan , in your scenario . Now , it isn't always a fit in somebody's plan , but I'd argue it always makes sense to at least explore that as an option and see how it can benefit you and if it makes sense or not .

So this is really just the tip of the iceberg when it comes to different ways to deal with these crazy inflationary periods that we're seeing now . And you know I'll say this isn't the first time that we've seen this right and it likely won't be the last .

But it is important to have a plan that can weather any storm , any market or interest rate environment that we come across in our retired years , and these are the years we want to , like I said , maintain that purchasing power and make sure that these accounts are sustained over a long period of time while we're no longer working .

So there's always a way to prepare and a way to at least mitigate the risk and exposure to these types of things . So I encourage you , you know , talk to your financial advisor or financial professional and ensure that you have a diversified plan in place to weather these storms so that your income can be as secure as it possibly can be in retirement .

Again , if anything you heard here resonated with you today , you have comments , questions or you just want to dive deeper into your particular situation . Please , I welcome you . Shoot us an email . The email address , again , is ask at bullmanwealthcom . I want to thank you guys all for tuning in and listening .

Whether you're coming from Apple Podcasts or Spotify or any other podcast platform , we do appreciate you taking the time to join us and listen in . We really greatly appreciate your reviews , your feedback and your time . So we'll see you guys next time . Join us on your financial compass . We'll catch you in the next episode .

This has been your host , markos Lemus with the Bollman Wealth Group , take care .

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