How to save for retirement during an inflationary period
Bob Powell, editor at Retirement Daily, joins TheStreet to share some tips on how to effectively save for retirement during an inflationary period.
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00:00Inflation. I think that's a, I don't want to say a big problem, but a major concern for retirees currently and for people who are close to retirement.
00:10We got an inflation rate, what, around 3% right now. What's your best strategies for dealing with inflation?
00:18So I mentioned earlier that inflation is one of the big risks that you'll face in retirement.
00:22And one of the few ways that you can manage the gate back risk is to make sure that you're investing in equities, which have a history of keeping pace with inflation.
00:30The other things that you might consider would be things like I bonds, which also keep pace with inflation, as well as something called treasury inflation protected securities, which are also designed to help people keep pace with inflation and offer a little bit more security than, say, equity.
00:45So have a mix of investments that are designed to keep pace with inflation. And I'd say that at a minimum will help you.
00:54The other is to be conscious of your expenses. And, you know, people are complaining today about automobile insurance. Right.
01:01So maybe one of the things that you do is increase the deductible, et cetera, et cetera.
01:05So start thinking consciously about what tend to be considered essential expenses, but might have some wiggle room.
01:12I know, for instance, I'm one of the troglodytes in this world that still has cable and and I and I know I should cut the cable.
01:19I haven't. But I know that if I get to retirement, I'll probably know that I need to cut the cable in order to reduce my entertainment line item in my retirement budget.
01:29There's things you can do on the saving investing side. And then there are things that you can be doing on the expense side to manage and mitigate the risk of inflation.
01:37We're heading into the second half of the year. Should we be tweaking our portfolio, giving inflation expectations and bad expectations?
01:51I mean, when we're coming into the year, you know, people are expecting three, four rate cuts.
01:56Doesn't look like we're going to get three or four rate cuts. So should investors retirement investors be looking at making some changes on the market?
02:06I always say two things should be your guide. One, if you're saving for retirement, you should have, if you don't, an investment policy statement, a blueprint for your investments.
02:16And that blueprint would say, for instance, I plan to invest 60 percent in stocks, 40 percent in bonds.
02:22And if at any point in time throughout the course of the year, the stocks go up to 65 percent or they go down to, say, 55 percent or below, I'm going to rebalance.
02:32And that rebalancing could be because interest rates have gone up or because the market has crashed or the market has gone up.
02:39But without that investment policy statement in place, you're sort of just acting, you know, to the whims of the market, to the whims of the election cycle, to the whims of the inflate of the interest rate cycle.
02:50So first and foremost, if you're saving for retirement, create an investment policy statement and then set what are called bands by which you would dictate when and how you would rebalance your portfolio.
03:02On the other side, if you're in retirement, what you need is a retirement policy statement that says this is how I plan to withdraw money.
03:11This is how I plan to monitor my withdrawals. This is how I plan to monitor my investments.
03:17This is how I will adjust my withdrawal rate and how I'll adjust my asset allocation in retirement should X, Y, Z happen.
03:25And again, you don't want to be sort of reacting to the news.
03:28You want to have a proactive plan in place. And I think what's the famous saying that Eisenhower said before D-Day, which was planning is everything.
03:39Right. So without planning for these potential circumstances, and I'd like to think about it when I'm planning for these circumstances.
03:46I like to think about it in three ways, which is to create not just one plan, but to create three plans, a best case scenario, a worst case scenario and a probable case scenario.
03:56So at least then you're working with sort of like if I'm outside of, say, one standard deviation of something happening that could be for the better or for the worse.
04:05I know what I'm going to do. I'm not going to just react to news that the Fed has not decided not to lower interest rates or that the stock market has crashed by 10 or 15 or 20 percent.
04:18I have a plan in place. So that's critical for folks. If you don't have one, get an IPS and retirement policy statement.