Inflation is on its way up! Over the last 12 months, the Consumer Price Index (CPI) increased 2.1 percent, the largest 12-month increase since October 2012. CPI has increased steadily every month since February of this year. Higher prices can be seen in a variety of industries, from food and energy to shelter, airlines and vehicles.
In inflationary times, the purchasing power of your dollar goes down. This can have a negative effect on your retirement savings because the money you put away now will be worth less in the future. However, there are steps you can take to make sure your nest egg can go the distance, and that whatever you’ve saved today will hold its value tomorrow. Here are three tips that you can use to stay ahead of inflation, while protecting your retirement nest egg.
1. Consider investing a small percentage of your nest egg in goods or commodities.
Commodities are basic resources and agricultural products such as crude oil, coal, sugar, copper, wheat, gold and silver. Historically, while the purchasing power of money goes down during inflation, the prices of goods and commodities can increase. The easiest way for the average person to invest in commodities is within a mutual fund or Exchange Traded Fund (ETF).
2. Pay down your outstanding debt.
Interest rates at most lending institutions have a tendency to rise during times of inflation to keep up with the decreasing value of the dollar. In order to combat rising interest rates along with inflation, consider paying off, or at least paying down, your debts. Also, as the value of the dollar declines, you will have to pay even more for purchases that were charged to your credit cards in the past. So work to pay down those debts and then leave your credit cards at home.
3. Review your interest-linked accounts.
Investing in very conservative financial vehicles such as Certificates of Deposit (CDs) can prove costly to your nest egg over time. If your money is not keeping up with the rate of inflation, you’re losing buying power! In order to stay ahead of inflation, it’s important to reevaluate your current investments and make any necessary changes to help hedge against future inflation. Make sure interest on your savings is at least at the rate of inflation, if not higher. As prices continue to rise, it’s important to understand that inflation is not a friend to your retirement plan and cannot be ignored. Make sure you’re taking the steps needed reach your financial goals, on time and ahead of inflation.
Brad Zucker, RFC® is the president of Safe Money Advisors, Inc., a Las Vegas-based independent financial advisory firm. He blogs on personal finance every Monday for the RJ. For more information visit www.SafeMoneyAdvisorsNV.com or connect with him viaFacebook and LinkedIn.