As you know, inflation has been big news throughout 2022. But will it continue in 2023? And looking even deeper, how should you factor inflation into your long-term plans?
Regarding the first question, many experts predict that inflation will subside this year, although there are no guarantees. High inflation last year is believed to have been caused by unusual factors, such as an increase in demand for consumer goods as the world emerged from the COVID-19 pandemic, leading to problems of supply chain. Additionally, the war in Ukraine has driven up oil prices, increasing manufacturing and shipping costs and driving up the price of wheat and other commodities.
Either way, the past year has reminded us to take inflation into account as you strive to achieve your financial goals. But how you react to inflation will depend somewhat on your life stage. Here are some suggestions to consider: If you’re still working… Contribute more to your retirement plans. If you can afford to set aside more money in your IRA and 401(k), you might want to. The more resources you will eventually have in retirement, the better protected you will be against the rising cost of living.
Adjust your portfolio goals with your finance professional. Using tools such as “what if” illustrations, a finance professional can show you different paths you could take with your investments, given different rates of inflation. So, for example, if you think inflation may be higher for a longer period than you thought, you can ask for a hypothesis showing how you might need to adjust your investment mix to achieve your goals. long-term, given your risk tolerance and time horizon.
If you’re already retired… Consider part-time work or consulting. Once you’ve retired, that doesn’t mean you can’t do paid work ever again. If you have accumulated years of experience and expertise, you could use your skills as a consultant. In addition, many part-time jobs are available for retirees. With the extra employment income, you may be able to delay withdrawals from your retirement accounts and other investments, possibly extending their longevity. (Once you turn 72, however, you’ll need to start withdrawing money from your 401(k) and traditional IRA.)
Delay taking social security. You can start taking Social Security at age 62, but your monthly checks will be considerably larger if you wait until your full retirement age, which will likely be between 66 and 67. (You can even wait until age 70, when your monthly benefits will peak.) Of course, whether you can delay taking Social Security depends on whether you can afford it, but it may be possible if you work longer than expected or if you work part-time in retirement. But even if you have to take Social Security before your full retirement age, your payments will be adjusted each year for inflation — in fact, for 2023, benefit checks will increase by 8.7% per year. compared to 2022.
We will always have to deal with some level of inflation – so it’s a good idea to be prepared.
This article was written by Edward Jones for the use of Kendra Nolte, the local Chillicothe Edward Jones Financial Advisor.