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Bullet-proof your savings against the onslaught of inflation in retirement, as you approach retiree

The most recent Consumer Price Index figures were mildly encouraging. The CPI presents a way to track and measure increases in the cost of goods and services, from food and gas, to visits to the doctor’s office, local gym, neighborhood florist (and on and on).

September to October increases were smaller-than-expected. In fact, they represented the smallest 12-month increase since the start of 2022. The welcome news comes on the heels of the Fed’s ongoing interest rate hikes, aimed at reigning in demand for the things that we buy in the hopes of attaining some balance with out-of-whack supply volume. Expect more of the same actions from the Fed as, while this important measure of inflationary levels indicates a step in the right direction, there remains a long haul in front of us.

As your partners in financial health and wellbeing, O’Donnell, Ficenec, Wills & Ferdig encourages readers to take control of what they can. There will always be “uncontrollables,” just as there will aways be turnarounds. Temper the temptation to make dramatic, emotion-driven changes to the course. You don’t want to miss out on the inevitable upside.

Here, we have put a spotlight on some considerations for our friends who are in retirement now and those who are approaching retirement. And we all are at some stage in our journey of approaching retirement -- whether that be five to 10 years from now, or 10 to 20-plus years from now.

In retirement? Enjoy it! Here’s how …

· Get creative when considering alternative sources of income. There are numerous options to fight the decreased buying power that goes hand-in-hand with inflation. There may be some insidious expenses that are cutting into your budget. These could include fees and subscriptions for products to services, such as telecommunications and entertainment. Ongoing payments for the likes of car insurance may be renegotiated. Likewise, it really pays to check into programs for seniors to “freeze” or provide relief from soaring home costs, from utilities to property taxes.

· Don’t make assumptions about your savings. OK, so the thinking goes that when the Fed hikes those rates, it also means a boost to your savings account, too, and not just how much it costs to get a loan for a car or that “empty-nester” house. Well, this is not quite reality. In fact, history bears out that financial institutions tend to react more quickly to raising interest rates on lending products, such as mortgages, and less quickly to raising savings rates. It all goes back to supply and demand; banks use monies in our savings accounts to make loans. And, nowadays, there is simply more money in deposit than demand for money in the form of loans.

Since the average rates for savings accounts remains anemic, take a good hard look at just how much money you have in cash. Do you need to diversify, diversify, diversify? You never want to be in a position where you have to sell stocks to keep your head above water. So, it is generally a good practice to set aside enough monies to pay your way through financial obligations for at least 12 to 24 months. Then, you have sufficient cash for the near term, but are not just sitting on a pile of languishing cash. You then have the freedom to spread those monies over stocks, bonds, commodities and other investment vehicles to really grow those funds over the longer term.

· Be flexible. In addition to finding more monies by re-evaluating and adjusting those spending habits, it may be time to jump right back into that project-based or consultative role with your former place of employment or within your industry. Look, we know enjoying life to the fullest is the ultimate aim. But it does come at a price. And even periodic work can provide a big boost to your income, without burnishing your “golden years.” Even a fun “side gig” -- one that plays into a hobby you have been able to enjoy more in your retirement -- allows you to get paid for what you love to do, without contractual obligations or the commitment associated with other gigs. And don’t forget what science says about staying active and engaged into retirement!

Many of the considerations mentioned above also apply to those who have not quite reached that goal of retirement. There are still opportunities to maintain, protect and even grow your nest egg during this stormy (albeit temporary) period, including:

· Save, save, save (with catch-up contributions)! Depending on where you are “at” in your journey toward retirement, it is recommended that you have anywhere from seven to nine times your income socked away. If that doesn’t sound like you, consider making up for your lagging savings with catch-up contributions. This year, individuals aged 50 and older can put away an extra $6,500 in their 401 (k)s. An additional $1,000 to traditional and Roth IRAs combined can also help you to play catch-up. These extra dollars really add up, especially when you have a longer time horizon.

· Don’t ignore inflation! Acknowledge it when allocating assets. It is generally advised to maximize those contributions; however, one should also offset the potentially devastating effects of through-the-roof inflation with savings investments and the allocation of assets. A good rule of thumb is, the more time that is on one’s side, the more the portfolio should skew towards stocks. Then, as you get ever-closer to your goal retirement age, you can add more bonds to the mix. The bonds help to tamper shorter-term market volatility, and further support the growth in funds to pay for goods and services at the prices they will command well into the future.

· Don’t take Social Security lightly. Sure, many pundits love to hate it; however, the reality is these benefits are among the best buffers that we have to soften the blow of inflation. After all, benefits are subject to Cost-of-Living Adjustments. These ever-adjusted benefits also present an invaluable additional income stream. Similar to the last point in our retirees section, it pays to be flexible on this front. Consider retiring a few years later. It really makes a difference in the amount of retirement income that is adjusted for inflation and accounted for when you start receiving your benefits payments. The Social Security Administration has a handy calculator on its website, which allows you to clearly see the favorable impact of delaying retirement on SSI benefits and, ultimately, the money you have to spend and enjoy after you retire.

· Unearth tax savings – Get to know and take advantage of all of the new credits that may be available to you courtesy of Inflation Reduction Act provisions. The Internal Revenue Service is providing ongoing updates related to IRA incentives and provisions here. Additionally, the IRS has made adjustments to tax rates to account for inflation. These 2022 adjustments apply to those returns that will be filed next year.

It pays to contact our tax and accounting professionals at OFWF sooner rather than later to stay on top of or even get ahead of anticipated changes. Furthermore, we are in the best possible position to know about the latest legislation, tax and other changes that could trickle down to savings and more monies insulated from the effects of inflation and market volatility. Give us a call today. We’d love to chat with you!

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