3 Ways To Protect Your Nest Egg

Compared to the nearly 6% Cost-of-Living (COLA) benefit bump in 2022, the projected 3.2% increase for 2024 is pretty ho-hum.

Not only is the projected COLA for next year underwhelming, it lags the current inflation rate by nearly a full percentage point. Many retirees will be falling behind if most of their income relies upon Social Security.

“The 3.2% COLA will begin with benefits payable to more than 66 million Social Security beneficiaries in January 2024. Increased payments to approximately 7.5 million SSI recipients will begin on December 29, 2023,” notes the Social Security Administration. (Note: some people receive both Social Security and SSI benefits)

Of course, the Consumer Price Index could continue to drop in coming months as it has been doing slowly throughout 2023. Or it could rise again. It’s hard to tell and economists are divided on the future course of inflation.

The only definite course of action is an ongoing need to protect yourself against the ravages of inflation. That means protecting your purchasing power — and your retirement portfolio.

Mark Miller, who writes the Retirement Revised newsletter, notes: “Although Social Security is adjusted annually for inflation, it will cover only part of your spending in retirement. Over a retirement several decades long, inflation can erode the buying power of your other assets, forcing a quicker spend-down and threatening your standard of living.”

A dollar worth less today than it was worth last year is money you can’t spend on your retirement lifestyle. How do you avoid hitting an inflation gap in your retirement kitty?

• If You Didn’t Plan for Inflation, You’ll Get Gobsmacked By It. Conventional financial advice is to load up on bonds in retirement, yet when inflation and interest rates rise, bond prices fall. A comprehensive financial plan can avoid that problem. Work with a certified, fiduciary fee-only financial planner who provides advice without selling you products on commission.
• Build Your Portfolio With Inflation-Fighting Vehicles. Money-market funds and insured money market accounts raise rates when they rise. Cash for immediate living expenses should be in these kinds of funds. You can also find bond funds that rise in price with inflation. “Portfolio strategies are available that can help mitigate inflation risk,” Miller says. “The timing of your Social Security claim also matters — and you may want to consider other income products, such as annuities and inflation-adjusted bonds.”
• Optimize Social Security Payments. Do you have a spouse? What’s the best way of maximizing your joint benefits? While this won’t eliminate the inflation threat, it will put more money in your pocket every month — if you do it right.

At the very least, it’s worth having a fee-only financial planner (see above) review your retirement plan to protect it from inflation.

“Far too many people don’t take the time to make an actual financial plan for retirement – and that’s a real misstep,” Miller adds. “If you don’t have a plan, it’s impossible to know whether you are on track to meet your goals.”