With the news that January’s inflation rate was a staggering 7.5%–the highest level in 40 years–everyone has inflation on their minds lately. Many retirees are reassessing how they can protect their nest eggs.

On this episode of Retirement Starts Today, we’ll explore a WSJ headline, “There’s No Perfect Way to Inflation-Proof Your Investments,” by Anne Tergesen. If you have been wondering how you can best use your investments to hedge against inflation in retirement, don’t miss out on this episode to hear the pros and cons of several different options.

If you have been wondering how you can best use your investments to hedge against inflation in retirement, don’t miss out on this episode to hear the pros and cons of several different options. Click To Tweet

Outline of This Episode

  • [1:22] Inflation is on the mind of every retiree in 2022
  • [3:57] I bonds are the belle of the ball
  • [6:14] The pros and cons of TIPS
  • [7:23] The pros and cons of stocks, commodities, and real estate
  • [10:06] The pros and cons of buying gold
  • [11:29] How to pay taxes on Roth conversions

The various ways to combat inflation

The biggest question facing retirees today is how to protect their savings. If you’re already retired and living off your savings, inflation creates a difficult situation. Your income is potentially fixed and prices are rising across the board. This is why Anne Tergesen’s article is so timely. Let’s explore the ups and downs of several different ways to combat inflation.

The biggest question facing retirees today is how to protect their savings from inflation. Click To Tweet

Delay taking Social Security benefits

For every month that you delay taking your Social Security benefit, the payment will increase. These benefits are also adjusted annually for inflation.

The downfall of waiting to take Social Security is that you may not live until the break-even age. If you have a shorter life expectancy or are in poor health then you may not choose to delay.

I Bonds

I bonds are inflation-protected U.S. savings bonds that are guaranteed to recover their principal plus inflation over the course of 30 years. This 30 year fixed rate adjusts semi-annually. I bonds have a clear advantage over conventional treasury bonds since traditional bonds are now providing a negative return when considering inflation.

One drawback to I bonds is that you can typically only purchase $10,000 per year. Another is that I bonds holders are prevented from cashing them in for the first year and will lose three months’ interest if they choose to redeem within the first five years.

Treasury Inflation-Protected Securities (TIPS)

TIPS are bonds with principal and coupon payments that adjust to keep pace with the consumer price index and are backed by the US government. However, they do have the drawback of being quite expensive.

Stocks and commodities

One way to improve your stock performance is to shift investments away from the worst performing sectors during inflation. These typically include consumer durable stocks. By moving into the energy and natural-resource stocks that tend to fare best you may see increased returns.

Another historical high performer during inflation is REITs since landlords typically raise rents to keep up with inflation.

Listen in to hear why commodities may be a bit risky and should be kept to a portfolio minimum. You’ll also hear how long you might have to hold on to gold so that it keeps pace with inflation. (Spoiler alert–it’s a lot longer than you think!)

How long do you think you have to hold on to gold to beat inflation? Listen in to find out! Click To Tweet

While there is no perfect answer to inflation there is a good answer

Every type of investment has its pros and cons, so there is no perfect answer. However, using guardrails and keeping your investments in a 60-40 stock to bond portfolio will ensure that you have 6 to 10 years before you have to sell any stocks. This strategy is a fantastic way to hedge against inflation.

Resources & People Mentioned

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