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How Inflation Threatens Your Retirement

The Consumer Price Index (standard measurement of US inflation) jumped 5% in May, as prices continue to rise for many common household items and industrial products. Inflation, the result of the devaluing of the American currency via a multitude of factors including government spending, taxation and supply/demand, is probably most clearly experienced at the grocery store and the gas pump.

One area where inflation is harder to account for is in your retirement plan. While our clients see projections that are inflation-adjusted, those projections can’t account for all of the subtle changes that may effect your lifestyle.

Inflation threatens retirees because of their dependence upon fixed income assets (like bonds, pensions and Social Security payments) and their desire to decrease investment risk as they age. Unfortunately, inflationary pressure may increase the cost of living dramatically over the course of a decade or more, dwindling down your nest egg more quickly than you had initially planned.

The best way to deal with inflation is to tackle the problem from both the spending and saving angles.

While inflation is surging, it’s best to put off flexible expenditures that may cool down over time. Things like home improvements, home buying, or purchasing of vehicles. If they can be put off until the market stabilizes, you have the potential to reduce your overall expense for some of those items.

From the savings side, you need to make sure you’re taking enough risk to allow the opportunity for your investments to grow in appreciation, not just production of income/dividends.

Inflation is an unknown, but it doesn’t have to catch you by surprise. Through good planning, and consistent monitoring, you can maintain control over your financial picture to make sure you attain your financial goals as you age.

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Joshua Duvall, CFP®, RTP

Joshua Duvall, CFP®, RTP launched his own Registered Investment Adviser in 2017 after more than a decade in the financial industry, working for some of the world’s largest and most successful firms including LPL Financial, New York Life, and State Farm Ins. Co. Married with two children, Josh resides in Tabernacle, New Jersey and is an engaged member of his community. Josh enjoys coaching youth sports, rooting for The Ohio State Buckeyes, and sharing his passion for Jesus through biblical ministry and community service.