You may have heard that we’re on the brink of war – a trade war that is, with China. As President Trump attempts to negotiate a fairer trade agreement, proposed tariffs on imported Chinese goods and services could affect inflation. If tariffs are imposed on $300 billion worth of Chinese goods, the core inflation rate would rise noticeably above 2% next year, according to Goldman Sachs Group.
If you think that diligently saving for retirement means you are all set for a long, prosperous 30 plus years, think again: Inflation hasn’t been high recently, but it still poses a major threat to your retirement. Even if the inflation rate were to stay around 2% like it has been for the past few years, it will still erode the value of your nest egg over time: If you retire at 65 and prices increase by 2% a year, $75,000 will have the same buying power as $50,000 when you are 85.
There’s no telling what the inflation rate could be 15 years from now when you’re already retired – in the 1970’s prices increased at an annual pace of more than 7%. To complicate things further for retirees, the price of some services increases faster than others, such as health care, which is the third largest expense for Americans 65 and older. You should look out for inflation when checking your blind spots when planning for retirement. So, what can you do to protect your retirement from inflation?
You can start saving more for retirement while reducing your taxes by increasing your savings rate as you get closer to retirement. Once you turn 50, you can contribute an additional $1,000 to your IRA for a total of $7,000 a year, and an additional $6,000 to a 401(k) for a total of $25,000 a year for 2019. A bigger nest egg can help to protect your savings from inflation.
Investing always involves some risk, but taking on that risk could help you to keep up with or even outpace inflation over time. But, as you get closer to retirement you’ll want steady income you can rely on. While Social Security payments rise with inflation, they may not keep pace with it exactly, and there are several reasons why you can’t rely solely on Social Security in retirement.
If you’re concerned about the threat inflation can pose to your retirement contact the professionals at Arlington Capital Management. We can help you create a comprehensive retirement plan that helps to protect your nest egg against inflation. Click here to schedule your complimentary financial review today.