Putting off big purchases can help protect you now, and you could help your future self by continuing to invest and pay into your retirement plans.
There is no magic way to get rid of inflation, but there are ways to protect yourself now and in the future.
The Federal Reserve can only do so much to fight inflation by raising interest rates. Rate hikes also take time to have an effect on the economy as a whole. Experts say that inflation will last for a long time, maybe until the end of next year.
That’s also what people want. According to the most recent Quarterly Market Perceptions Study from Allianz Life, 80% of Americans are worried that rising inflation will continue to hurt the buying power of their income over the next six months.
What worries me is that so many Americans don’t seem to be ready for this historic inflation. More than half of the people who answered said that inflation has stopped them from saving for retirement or made them save less. And 43% said that rising inflation has forced them to use their retirement savings.
Social Security is one of the lifetime benefits that can help make up for inflation
The almost unprecedented cost-of-living adjustment that was made to Social Security payments this year is a big sign of how inflation is hurting people. Next year, Social Security payments will go up by almost 8.7%. The Social Security Administration says that will be the biggest increase to Social Security checks since 1981. (opens in new tab).
This means that Social Security is one of the few benefits people get over the course of their lives that might help to make up for inflation. Some annuity products can also raise payments to help make up for the effects of inflation.
Even if you are eligible but haven’t started collecting Social Security yet, you won’t miss out on the increase. Don’t get scared and think you need to claim it right away to get your money. If you are 62 or older, this increase and any other future cost-of-living adjustments will be added to your estimated future benefits.
How people act affects inflation
How inflation slows down over time in the coming months will depend in part on what everyday consumers do. If we think inflation will keep going and act like it will, the dollar’s value will keep going down. It can turn out to be true on its own.
Here, we’ll talk about what you can do now and in the future to protect yourself from the risk of inflation.
What You Can Do Now and Soon
Here’s the thing: how long high inflation lasts depends on how people act. Even though interest rates have gone up because the Federal Reserve raised them, people still spend a lot of money.
During times of inflation, putting off big purchases is a good way to keep your money in order. This will also keep you from getting into more debt.
At the same time, prices are about to go down on a lot of items. Americans bought a lot of goods when the COVID-19 pandemic was at its worst. Many big-box stores didn’t have enough TVs and other things. And people who spent nearly all of their time at home wanted new TVs.
Retailers ordered more products, but now that the pandemic is over, fewer people are interested in buying a new TV. So, stores have too much stock and will put it on sale to get rid of it.
Even if you’re tempted to buy a cheap TV because it’s on sale, think before you buy. It’s more important to do boring things with your money, like make sure you have a good cash reserve and avoid paying interest on credit card balances.
Remember that buying something on sale doesn’t mean you saved money. You spent money! And if you pay for it with a credit card, you might end up paying more than the original price.
Still, if this record inflation keeps up, short-term actions like “no-spend months” won’t set you up for long-term financial security.
What You Can Do Over a Long Period of Time
The price level won’t go down tomorrow. You need to start taking steps to protect yourself from the risk of inflation. In the Allianz study, 75% of Americans said they were worried about how the rising cost of living would affect their retirement plans. You don’t want to have to work longer or at a second job than you had planned.
Think about continuing to invest, making 401(k) contributions, and making other financial decisions for your future self. The Millennials, who are the youngest age group, were the most likely to say that inflation had caused them to stop or cut back on saving for retirement. Even though 65% of Millennials said they had cut back on or stopped saving for retirement, 59% of Gen Xers and 40% of Boomers said the same thing.
Since it will take Millennials longer to retire, the money they save now is even more important, since it will have more time to grow. These are important years to save.
Now might also be a good time to talk to someone who knows about money. They can help you come up with a plan to deal with inflation now and set you up for a strong financial future. You should talk about the mix of assets in your portfolio and look at how your investments can help you keep your purchasing power over time.
It is important to plan for the future. Talk to a financial expert about adding protection to your portfolio to reduce the chance that long-term inflation will hurt your retirement.