In simple terms, inflation is the rate at which the cost of goods and services rises. Due to inflation, it costs more money to buy groceries, gas, or anything else than it did in the past. Inflation can also affect your retirement savings as stocks, and other investments don’t automatically adjust for it. Rising inflation means your investments will have to work harder to keep pace. The extent to which inflation will impact your 401(k) will depend on several factors, like your investing strategy and how close you are to retirement.
What is the Impact of Inflation on a 401(k)?
Unfortunately, you can’t stop inflation as it’s out of our control. But you can be mindful of it and implement certain strategies to help lessen the burden of inflation on your 401(k). Here are some ways to help lessen the impact of inflation on your 401(k):
1. Maintain your contributions.
When your paycheck doesn’t go as far as it used to, it can be tempting to reduce your 401(k) contributions. If possible, maintain them to ensure you get the full match if your company offers it. You might even want to increase your contributions so that more money goes into your account. In 2022, you can contribute up to $20,500 or $27,000 if you’re 50 or older.
2. Diversify. Diversification means spreading your money across different types of investments to reduce risk.
During periods of inflation, it’s a good idea to diversify your portfolio with a mix of strategies that can help weather volatility and inflation.
3. Pay attention to fees.
While minimizing investment fees is important, it’s essential when inflation has the potential to erode your 401(k) returns. The less you pay in fees, the more of your returns you’ll get to keep in the long run. Speak to your financial professional about your fees and what you can do to lower them. Also, consider less expensive strategies that are appropriate for your situation.
4. Be flexible.
If you’re already retired, you might have to make some lifestyle changes to cope with the effect of inflation on your 401(k). Maybe you can move to an area with lower real estate taxes. Or perhaps you can postpone some of your trips or drive less to save on gas. Another option is to pick a side hustle or part-time job to add a cushion to your retirement savings.
Consult Your Financial Professional
A financial professional understands how inflation impacts 401(k) accounts. If you’re unsure what to do with your retirement savings, don’t hesitate to reach out for advice. Contact us today to get started.
SWG2306340-0722e The sources used to prepare this material are believed to be true, accurate and reliable, but are not guaranteed. This information is provided as general information and is not intended to be speciﬁc ﬁnancial or tax guidance. When you access a link you are leaving our website and assume total responsibility for your use of the website you are linking to. We make no representation as to the completeness or accuracy of information provided at this website. Nor is the company liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, websites, information and programs made available through this website.
At Guardian Financial Group we know you want to feel SECURE about retirement. You want certainty around your retirement plans. The problem is a lack of knowledge to put a proper plan in place, which makes you feel anxious. Contact us today to get started creating your minister empowerment plan or just general financial planning.