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4 Things You Can Do About Rising Inflation

August 18, 2021

In June, the Consumer Price Index, which measures the change in the prices of a broad range of goods and services over time, rose 5.4% from a year earlier, marking the sharpest increase in inflation since 2008.1 Whether prices are rising at the gas pump or grocery store, inflation decreases your purchasing power, meaning you pay more money for the same things. While experts debate whether recent increases are a signal that we’re entering a period of sustained higher prices—or if inflation will be temporary—there are ways to help manage the impact on your purchasing power.

Why it’s different this time
It’s important to note that the price hikes we’re seeing now are different from those seen at the beginning of the pandemic, which were largely due to shortages and panic buying. In fact, a rise in inflation was expected this year as the economy picked up steam, business restrictions eased, and consumer demand surged. While ongoing supply chain disruptions and pent-up consumer demand may continue to drive prices upward in the coming months, the Federal Reserve (the Fed), which sets U.S. monetary policy, expects steep rises to be transitory and inflation to remain within its 2% target over the long term, into 2022 and 2023.2 However, there is no guarantee that the Fed will be successful in keeping inflation in check. Conditions could change based on direction of the COVID-19 pandemic, as well as other market, economic, and geopolitical factors. So what can you do to help protect your income from the eroding effects of inflation? Consider the following steps:

1. Review your budget and spending habits. Cutting back on certain discretionary expenses can free up more money to help pay for essential expenses where prices may be rising for food, healthcare, clothing, or transportation.

2. Follow a plan. The financial planning process takes inflation and other market and economic factors into account when modeling different strategies and scenarios. Planning can help ensure you have a flexible strategy in place that’s aligned with your income and spending goals that can be adjusted as market and economic conditions change over time.

3. Put excess cash to work. If you have cash on the sidelines that you don’t need for current expenses or to shore up emergency savings, consider investing it, so it can work harder for you.

4. Check your portfolio asset allocation. A portfolio allocation that’s too conservative may not generate the income you need. For example, if your portfolio earned 4% over the course of a year when inflation was at 5.4% for the same period, you could no longer afford the same basket of goods. Consider if it makes sense to allocate a larger percentage of portfolio assets to growth-oriented investments, which can provide a hedge against inflation over the long term. To learn more, call the office to schedule time to talk about ways to help protect your income in retirement.

1 http://www.bls.gov/news.release/cpi.nr0.htm

2 http://www.federalreserve.gov/monetarypolicy/files/20210709_mprfullreport.pdf

Women Continue to Face Unique Challenges in Retirement

National Women’s Equality Day is celebrated on August 26 to commemorate the certification of the 19th Amendment in 1920, which guarantees women the right to vote. While women’s voices and votes continue to influence social, economic and public policy, as a group, women still face challenges when it comes to financial equality—especially where retirement is concerned.

According to the U.S. Bureau of Labor Statistics, women only earned 82.3% of what men earned in 2020.1 Lower earnings can have long-term consequences as women prepare for and enter retirement. In fact, the combination of lower lifetime earnings and longer average lifespans is a leading reason why women experience higher rates of poverty in retirement than men.2 Not only do many women start out with less—it also has to last longer. Yet, lower wages alone don’t tell the whole story. On average, women leave the workforce to care for children or relatives at a higher rate than men. That can reduce their Social Security benefits in retirement, which are based on earnings during their working years.3

In addition, the pandemic exacerbated many of these challenges. According to the National Women’s Law Center, more than 2.3 million women have left the workforce since February 2020, bringing their labor force participation rate down to levels not seen in more than three decades.

If you, or the women who are important to you, are concerned about having the income needed to meet important lifestyle goals in retirement, consider the following steps. For those saving for retirement: Contribute the maximum amount to any qualified retirement plans you are eligible to participate in, such as a 401(k), 403(b) or individual retirement account (IRA). Take advantage of catch-up contributions if you’re age 50+ (limits vary by plan type) Talk to a financial professional about how to optimize your Social Security benefits If you are in or nearing retirement: Put a comprehensive plan in place for how you will draw income in retirement in a tax-efficient manner Adhere to a budget to help manage spending in retirement Meet with a financial professional at least annually to review your plan and make any necessary adjustments If you have questions about your income in retirement, contact the office to schedule time to talk.

1 http://blog.dol.gov/2021/03/19/5-facts-about-the-state-of-the-gender-pay-gap

2 http://www.americanprogress.org/issues/women/reports/2020/08/03/488536/basicfacts-women-poverty/

3 http://www.ssa.gov/pubs/EN-05-10127.pdf

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