When you retire, there's likely a good two to three decades of living to look forward to. But the amount your dollar buys in the first year of retirement will shrink over the next years due to inflation. The annual 澳洲幸运5官方开奖结果体彩网:inflation rate in the U.S. has averaged 3.1% since 1913. However, that figure masks a lot of variances. Baby Boomers might remember the 1970s when inflation rates hit double-digit rates. In general, beating inflati🔯on requires a return on investment of at least 4% to 6% per year, in addition to whatever income is gener🔯ated or saved for. 

Accordingly, here are some strategies that investors, as well as 澳洲幸运5官方开奖结果体彩网:financial advisors, might want to adopt.

Rent Your House

If you own your house, renting part of it out can be a nice inflation hedge because rental prices reflect local inflation. If the location is good, raising rents over time won't impact getting a tenant. More older adults are 澳洲幸运5官方开奖结果体彩网:renting out space out o🍰f necessity. If you're retired, the double wham𒅌my of inflation and interest makes renting out that spare bedroom a more attractive option.

Can you use your house to save for retirement? Probably not. There is a huge difference between 澳洲幸运5官方开奖结果体彩网:monetizing 澳洲幸运5官方开奖结果体彩网:real estate that you own and investing for retirement. In order to 澳洲幸运5官方开奖结果体彩网:turn a profit on a property, it's necessary that ജits value increases faster than inflation and the interest rate on the loan, which might be an additional 3% to 5% at least.

So one's real estate would have to gain value at rates approaching 6% every year at a minimum, and more likely double digits. Outside of a 澳洲幸运5官方开奖结果体彩网:real estate bubble, that isn't likely. There are many good reasons to buy a home—building equity i🍷s one—but investing for retirement is proba🐬bly not one of them.

TIPS

Treasury Inflation-Protected Securities, or TIPS, are a kind of government-backed bond introduced in 1997. Unlike conventional 澳洲幸运5官方开奖结果体彩网:treasury bills, TIPS have an adjustable principal, linked to the 澳洲幸运5官方开奖结果体彩网:Consumer Price Index (CPI), and a fixed 澳洲幸运5官方开奖结果体彩网:coupon rate. That means that as inflation rises (or falls) the amount of money that goes to the holder varies with it.

On the plus side, there's no danger that inflation will get high enough to make them money losers, unlike conventional bonds. A coupon rate of 3.5% does no good if inflation reaches 4%. The risk, though, is when inflation is negative or extremely low. 澳洲幸运5官方开奖结果体彩网:Deflation doesn't happen often—the last major deflationary period in the U.S. was the Great Depression. The Great Recession managed to record one negative rate when CPI registered -0.4% in 2009. A very low inflation rate can, however, push Treasury yields into negative territory as investors panic and rush to the 澳洲幸运5官方开奖结果体彩网:relative security of T-bills.

Annuities

澳洲幸运5官方开奖结果体彩网:Annuities can offer inflation protection, depending on the type. An annuity is basically "澳洲幸运5官方开奖结果体彩网:retirement insurance." You pay a premium, and at the end of a certain t♋erm, you get a fixed monthly payment.

澳洲幸运5官方开奖结果体彩网:Fixed annuities generally win out here. The combination of lower fees and the security that comes with not having to worry about the value of the underlying assets makes them better for most people. 澳洲幸运5官方开奖结果体彩网:Variable annuities are annuities that offer higher returns if the market does well. One can continue to make contributions after retirement, and they enjoy some tax benefits. They have higher fees, though, and are complex investments.

SECURE Act and Annuities

With the introduction of the , employees may discover more annuity options offered by their employers in their 401(k) or other retirement plans. This is because there are several provisions in the act that make it easier to incorporate annuity options in employer-sponsored retirement plans.

For example, annuities in a 401(k) plan are now portable, meaning employees can transfer them without surrender charges or fees to another plan or IRA should they change jobs or should their employer discontinue offering the annuity option. The SECURE Act also creates a "fiduciary safe harbor," which means employers are protected from liability should the insurer they choose fail to make annuity payments.

Mutual Funds, Stocks, ETFs

Of course, there's always just traditional investing for income: putting money into 澳洲幸运5官方开奖结果体彩网:mutual funds, stocks, or 澳洲幸运5官方开奖结果体彩网:exchange-traded funds (ETFs) and living off the returns. Funds, stocks, and ETFs are all very liquid, and even if one accounts for 澳洲幸运5官方开奖结果体彩网:capital gains, the tax rate is considerably less (about 20% at the high end). 澳洲幸运5官方开奖结果体彩网:Dividends are taxed at the ordinary rate, but long-term capital gains—which is anything held for a year or more—are not.

In retirement, though, the concern is usually providing a stream of income, rather than growing the assets. Timing is everything. Anyone who put money into the S&P 500 in 2003, when the stock market found its low after the bursting of the 澳洲幸运5官方开奖结果体彩网:dot-com bubble, would have lost money by the time the Great Depression hit in 2008. Had they pulled out in late 2007 they'd have nearly doubled their investment. The difference is only a few months. Many soon-to-be retirees had to keep working in the wake of the 澳洲幸运5官方开奖结果体彩网:financial crisis𝄹 because so much🦩 of their wealth was tied up in stocks.

Social Security

Then we have the old standbys: 澳洲幸运5官方开奖结果体彩网:defined-benefit plans and 澳洲幸运5官方开奖结果体彩网:Social Security. Social Security is a 澳洲幸运5官方开奖结果体彩网:fixed income but it has 澳洲幸运5官方开奖结果体彩网:cost-of-living adjustments. And delaying retirement can go a long way too. Those who wait until age 70 to collect Social Security can 澳洲幸运5官方开奖结果体彩网:boost their monthly payments by 8%. Social Securi🐬ty by itself isn't much, of course, but in combination with savings and a 401(k) plan, it can help a lot.

Defined-benefit plans (澳洲幸运5官方开奖结果体彩网:if you're lucky enough to have one) often structure benefits according to the last few years of salary. Delaying retirem🐼ent can boost the monthly amount, providing a f🌺urther hedge against inflation even if the check is a fixed number.

The Bottom Line

There are several strategies for managing inflation in your or a client's retirement savings. Most likely, a combination of the above strategies will be employed to ensure that purchasing power is protected and savings drawdown doesn't happen too fast.