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If you've been hurt by rising prices at the grocery store, gas station and utility bills, you're certainly not alone. In fact, the period from June 2021 to June 2022 saw a 9.1% increase to the Consumer Price Index for all urban consumers, according to the Bureau of Labor Statistics, marking it the highest period of inflation for nearly 40 years.
That's horrible news for many Utah workers who are near or at retirement age. According to the 2021 Natixis Global Retirement Index, 59% of Americans accept that they'll need to work longer than they'd planned in order to retire comfortably. The index also revealed that 41% of Americans now say financial security in retirement is "going to take a miracle."
Even younger workers are feeling the pinch. Another survey by BMO Harris Bank found that 60% of workers 18-34 were forced to reduce contributions to their retirement savings plans to help offset rising expenses.
Complimentary Social Security Analysis
Discover the optimal timing to get the most from your benefits. Find out how you could reduce, or avoid paying taxes on as much as 85% of your benefits and how you could avoid triggering higher Medicare premiums. Plus, learn whether you're eligible for other benefits that could put thousands in your pocket every year! Call B.O.S.S. Retirement Solutions at 800-637-1031.Inflation complicates living on a fixed income
When the cost of living rises at a rapid rate it has an increased negative impact on those with fixed income streams. That's because inflation essentially shrinks your buying power as goods become more expensive while your income remains unchanged.
Inflation diminishes the value of a 401k or other retirement accounts for those looking to retire because that money will no longer go as far. For example, you might have heard of the rule of 72, which is a quick way to estimate how many years it takes for your investments to double, based on their interest rates, CNBC says.
To use this rule in reverse, CNBC advises dividing 72 by the inflation rate to see how long it will take for your buying power to be halved. With inflation currently at 9.1%, you'd see your buying power diminished by 50% in less than eight years.
Increasing income is not always an option
Planning to work longer than you expected or planned is one way to make up for the buying power you lose as inflation rises. This will allow you more time to contribute to your retirement savings and result in fewer years to live off your savings. However, it often doesn't work out as planned.
A 2018 Gallup Poll found that non-retired Americans planned to work until 66. Unfortunately, that turns out to be difficult for many. Job loss, health problems, caregiving for loved ones and other issues often force workers to retire sooner than they planned.
The actual median retirement age is 62 and more than half of respondents reported they were forced to retire earlier than planned, according to a 2019 report by the Employee Benefit Research Institute
Another option would be to invest in higher-risk products that potentially have greater returns. However, the keyword is risk. These types of investments also come with the potential for greater losses, which is why they're not typically advisable for retirement savings.
If you own a home or another real estate property, you might consider selling while the market is high. This can help cushion your retirement account and possibly make up for lost buying power.
While taking on a part-time job might seem to be an appealing option, in some cases, creating another stream of income will also increase your tax burden and may affect your Social Security or 401k disbursements.
Lowering taxes in retirement
One of the best ways to protect your retirement savings is by reducing the taxes you pay in retirement. There are strategies to help you reduce or potentially eliminate your taxes in retirement which puts more money in your pocket!
With the right retirement plan, you can potentially reduce your risk while increasing Social Security income and possibly decreasing your taxes in retirement.
The 3 greatest threats to your retirement today
Financial experts explain some more modern threats to your retirement savings that could leave you with less than you need.To learn more about inflation-fighting strategies, call B.O.S.S. Retirement Solutions at 800-637-1031 or click here. One of our fiduciary advisors will be happy to share how you can apply these strategies to your specific situation. And there's no charge or obligation whatsoever.
Ryan Thacker and Tyson Thacker are the Founders of B.O.S.S. Retirement Solutions with six offices throughout greater Salt Lake City. They are three-time winners of Utah's Best of State Award.
Advisory services offered through B.O.S.S. Retirement Advisors, an SEC Registered Investment Advisory firm. Insurance products and services offered through B.O.S.S. Retirement Solutions. The information contained in this material is given for informational purposes only, and no statement contained herein shall constitute tax, legal or investment advice. The information is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual's situation. You should seek advice on legal and tax questions from an independent attorney or tax advisor. Our firm is not affiliated with the U.S. government or any governmental agency.
