Over time, inflation actually eats away at the real value of retirement savings, since it negatively impacts the purchasing power of every dollar. To protect savings, one might be tempted to invest more cautiously as retirement approaches. However, the latter can last for decades, so it is necessary to have assets in long-term investments to help offset the impact of inflation.
It is therefore necessary to plan for retirement investments which generally evolve according to inflation, such as commodities or Treasury securities protected against inflation, and investments, such as shares, whose return is generally higher than the interest rate. long-term inflation.
Reassure older customers
Customers close to retirement are most at risk of suffering from inflation, so they are often the most worried. To help them, it is necessary to take several measures, recommends Think Advisor.
You don’t want your clients’ portfolios to be impacted on top of the impacts of inflation because they act too quickly out of worry. Especially since some certainly have nothing to worry about. It is therefore important to discuss with them and review their disbursement plan to ensure that their projects have not changed significantly.
If the latter is not on the right track, it is necessary to adjust it by clearly explaining to your client the changes you want. A period of inflation is also an excellent time to assess your client’s true risk tolerance. If the latter is prone to insomnia, it would be a good idea to find investments that tend to perform better in a recession, such as high-quality bonds or dividend-paying stocks.
- Additional cash
Withdrawals should be monitored, particularly among retirees. It must be ensured that these will not have a negative impact on the longevity of the portfolio. To avoid ill-timed withdrawals, you should advise your retirees to build cash reserves that they can draw on to avoid taking money out of their investments at the wrong time. A year of cash to support your client’s day-to-day should be enough to give investments time to recover.
- Repay variable debts
Interest rates have risen rapidly and seem set to continue to do so, which means any variable interest rate debt is about to get more expensive. So get your customers to pay off those debts quickly.
The best way to deal with inflation is to reduce overall spending. You can discuss with your clients the idea of downsizing or moving to a location with a lower cost of living in retirement.