Preparing for Retirement in a Higher Inflationary World

Inflation is a normal part of the economic cycle, yet the inflation data we have been seeing in 2021 is anything but normal. According to NPR, year over year things cost 6.2% more in October of 2021 than at that time last year. A close to complete shutdown of the economy in March of 2020 sharply disrupted supply chains and the workforce. Those issues, in addition to trillions in government stimulus, have led to inevitable increases in consumer prices. With the U.S. economy in recovery, many have asked what could be done to better prepare for higher inflation for longer. To help answer this question, Ideal-Living spoke with Financial Advisor Lawrence S. Tundidor, AIF®, AAMS®, AWMA® of the Tundidor Wealth and Investment Group to find out what folks nearing retirement or in retirement could potentially be doing to prepare.

by Lawrence S. Tundidor

1. Develop A Comprehensive Written Financial Plan

Some have said that goals without a plan are just dreams. One of the most important things Americans can do is to create a solid financial plan that takes into account their short- and long-term goals. Having that plan in place allows individuals and families to create a roadmap that shows where they currently stand in relation to achieving the economic and lifestyle goals they have set, and what needs to be done year after year to stay on track. Another important benefit of a financial plan is the ability to run hypothetical scenarios, like 6% sustained inflation and any negative impact it could have, coupled with potential losses in retirement accounts, lower home value, or losses of employment in the future. While certain outcomes cannot be prevented, having a course of action for a worst case scenario allows any “cracks” in the financial plan to be potentially addressed way in advance.

2. Have an Adequate Cash Reserve

One of the best things Americans can do to prepare for difficult times is to build an adequate cash reserve that is right for their needs and lifestyle. Many have said that three to six months of expenses is the right amount. According to FDIC data, banks saw a record $2 trillion surge in deposits. Many Americans are sitting on large amounts of cash earning little to no interest, with most banks yielding .5% or under. One must look at their specific expenses, existing debt, upcoming large expenses, and the viability of their income in order to maintain a cash number comfortable for their specific situation. For example, a business owner or someone employed in an economically-sensitive sector may need more in cash reserve than someone in a position where their employment is more likely to be safer in an economic downturn. For those close