How to strategize for retirement as inflation hits 40-year high

Inflation in the US peaked at 40 in March consumer prices rose 8.5% from a year ago. While inflation is often associated with higher costs of groceries, gasoline, and other living expenses, many Americans also wonder: Could inflation also break my nest egg?

For Americans who are close to retirement, a common concern is the potential impact of stock market volatility on their investments.

“What we do know is that if you experience a substantial loss in the 10 years leading up to retirement, it can delay or affect your retirement plans for the rest of your life. It can have such a big impact,” said Rebecca Walser. president of Walser Wealth Management. he told CBS News. “So it’s very important that people who are so close to retirement are really cautious at this time when the market is back, where we see inflation, we see a lot of geopolitical unrest.”

Since these factors could slow market performance, Walser said people on the proverbial path to retirement might consider shifting some of their money to Treasury inflation-protected securities (TIPS), US government bonds. which can “help mitigate the impact of inflation at least for the short term.”

Traditionally, financial advisors have recommended that people assume an annual inflation rate of approximately 3% when planning for retirement. But with the United States now facing the highest inflation in decades, Walser said people should plan higher rates.

Impact of the employer

For employers, adjusting their annual compensation and benefits to account for rising inflation can be tricky.

“If you look at what happened between 2021 and 2022, a lot of entrepreneurs were left with the traditional average annual increase of 3% because at that point they could say, well, maybe it’s temporary. It doesn’t really affect the long term. “Obviously, employers don’t want to get stuck in an inflation-adjusted salary if then the numbers go down again,” Walser said.

As a result, more companies are implementing retention bonuses as a financial incentive for valued employees to stay on board.

“After the Great Resignation of 2021, we had so many people who left the workforce that you already saw higher salary increases year after year, but employers also implemented a withholding premium to get people to stay. “This is a way that could also explain inflation, but not block this price increase forever with that salary,” Walser said.