Protecting Your Savings from Inflation: Strategies to Consider

After learning about all the ways inflation can diminish your savings, it’s natural to feel concerned. But the good news is that awareness is the first step toward action. There are many strategies you can explore to help shield your retirement from the effects of rising prices. This isn’t about making drastic changes overnight, but about thoughtful adjustments and careful planning.

Below are several areas to consider. Think of these as starting points for your own research and for conversations with family or a trusted financial professional.

Reviewing and Adjusting Your Budget

The most powerful tool you have is knowledge about your own finances. Before you can protect your savings, you need to know exactly where your money is going. If you don’t already have a budget, now is a perfect time to create a simple one.

Try tracking all of your expenses for a month or two. You can use a simple notebook, a pre-printed worksheet, or a basic computer spreadsheet. The goal is to get a clear, honest picture of your spending. You might be surprised by what you find.

Once you see where your money goes, you can look for areas to make adjustments. This doesn’t mean depriving yourself. It’s about smart spending. Can you save money by bundling your cable and internet services? Are you taking advantage of all the senior discounts available at local restaurants, movie theaters, and stores? Could you reduce energy costs by adjusting your thermostat or sealing drafts around windows? Small, consistent changes can free up significant cash flow over time.

Thinking About Your Investment Mix

As we discussed, money held in very “safe” accounts like savings or CDs can lose purchasing power to inflation. For long-term growth that has the potential to outpace inflation, many people look to other types of investments. It’s important to remember that these options come with different levels of risk, and what’s right for you depends on your personal financial situation and comfort with risk.

Some asset types that have historically provided some protection against inflation include:

Stocks (or Equities): Owning shares in solid, well-run companies can be a hedge against inflation. This is because many businesses can pass their higher costs (for materials, labor, etc.) on to customers by raising prices for their products or services. If their earnings grow, the value of their stock may grow as well.

Real Estate: For those who own property, real estate values and rental income have often risen with or above the rate of inflation over the long term.

Inflation-Protected Securities: The U.S. government offers special bonds called Treasury Inflation-Protected Securities (TIPS). The principal value of these bonds adjusts up or down with inflation. This means the interest payments they provide are designed to keep pace with changing prices.

Revisiting your investment strategy is a significant decision. It is highly recommended to discuss your portfolio and long-term goals with a qualified financial advisor who can help you understand the risks and potential benefits of different approaches.

Maximizing Your Income Streams

Another way to combat rising costs is to ensure you’re getting every dollar of income you are entitled to. Are you sure you’re receiving the maximum Social Security benefit you’ve earned? Have you checked to see if you have any old, forgotten pension plans from previous employers? The Pension Benefit Guaranty Corporation (PBGC) is a federal agency that can help with certain pension issues.

You can also check for unclaimed money that might be owed to you. States hold billions of dollars in unclaimed property from old bank accounts, insurance policies, or utility deposits. You can perform a free search for your name on the official website of the National Association of Unclaimed Property Administrators, which can be found at NAUPA’s Unclaimed.org.

For some, taking on a part-time job, doing some consulting work in their former field, or turning a hobby into a small business can provide a welcome income boost and a sense of purpose. The key is finding something that fits your lifestyle and doesn’t add unwanted stress.

Managing Your Withdrawal Strategy

How much you withdraw from your retirement accounts each year is a critical decision. For years, many financial planners suggested the “4% rule,” which involved withdrawing 4% of your portfolio in the first year of retirement and adjusting that amount for inflation each subsequent year. However, in today’s economic climate, some experts suggest that a more flexible approach may be better.

This could mean being more dynamic with your withdrawals—perhaps taking out a little less in years when the market is down and inflation is high, and a little more in years when your investments have performed well. This helps your portfolio last longer. Again, this is a complex topic and an excellent one to discuss with a financial professional who can help you create a withdrawal plan tailored to your needs.