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How to Inflation-Proof Your Retirement

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What would you do if you found out that the average retirement savings account won’t be enough to cover your costs once you’re ready to leave the workforce? According to a recent study, that’s exactly what’s happening, and a major reason is due to inflation. In this post, we’re going to show you how to inflation-proof your retirement savings so that you can use them as intended.

What is inflation?

Inflation is a rising cost of living that affects all of us, no matter how much money we have in our pockets. Over time, prices for goods and services go up, which means the money we have to spend to buy those goods and services goes down. If you’ve ever remembered something being cheaper to buy than it currently is now, you’ve witnessed inflation. Unfortunately, inflation is rising dramatically, making the things we buy more expensive and the money we save less valuable.

The good news is that you can do something to help protect your retirement savings from inflation. Here are five tips to help you inflation-proof your retirement savings:

Save for retirement in a safe investment

One of the best ways to protect your retirement savings from inflation is to invest them in safe, long-term investments that will steadily grow over time. Investments like index funds or mutual funds will typically outperform other types of investments, which will help protect your money from the effects of inflation.

Use your benefits wisely

If you’re receiving a retirement benefit from your employer, make sure you use it wisely. Many people will withdraw their benefits early if they need the money and try using retirement to pay off debt or embark on risky investments. This can be a significant disadvantage in an inflationary environment, as the value of a retirement benefit may not be as high as it was when it was earned.

Diversify your retirement accounts

One of the best ways to protect your retirement savings from inflation is to spread your money around different accounts. This way, even if one account loses value, the total value of your retirement savings will not be significantly impacted. Experts typically recommend having your portfolio be a mix of stocks, bonds, and cash. The percentage of allocation depends on your age and goals. For example, if you’re in your late twenties, you have a better chance of recovering from market fluctuations and can afford to put more money into risky investments like stocks. But if you’re closer to retiring, it’s better to have your funds put towards more stable investments that accrue a steady interest like bonds. If you’re unsure how to diversify your portfolio, consider speaking with a financial advisor.

Adjust your lifestyle

If you can’t afford to save as much money as you’d like, don’t fret. You can still help protect your retirement savings by adjusting your lifestyle and spending less. Try to live below your means and save as much money as possible so that you’ll have a healthy emergency fund to fall back on should you need it.

Take advantage of compound interest

Compound interest is a powerful financial tool that can help you save for your retirement over time. When you invest money in a savings account, the interest that you earn on that money helps to grow your savings over time. The longer the money is invested, the more time compound interest has to work.

The bottom line

It’s more important than ever to take steps to protect your retirement savings. Follow these tips, and you can be sure that your nest egg will be there for you when you’re ready to leave the workforce

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