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The Best Inflation Risk Moves To Make With Your Money

HerMoney Staff  |  October 18, 2022

Inflation is real. But you don't have to lose sleep over the leak in your spending power. Here's how to protect your accounts + investments.

Forget illness, market volatility, and unemployment, when it comes to what’s keeping women up at night — inflation tops the list. For good reason: it’s at a 40-year high of 8.5%, and is stretching the budgets of millions of households. Women across the country are feeling the pain when they grocery shop, fill up the tank, or do pretty much anything. Yet many women say they just don’t know what to do about it, particularly when it comes to investing and saving.  

According to a new HerMoney/Alliance for Lifetime Income’s State of Women 2022 study, women cited inflation risk as their biggest concern, but only two in five know how to protect their assets from it. Across all income levels, from modest incomes to $200,000+ earners, just 44% of women are taking steps to address inflation risk in their portfolios.

“Many economists refer to inflation as the ‘worst tax,’ since it often goes relatively unnoticed when it’s at acceptable levels,” says Jean Statler, CEO of the Alliance for Lifetime Income. “It’s only when we see gas prices jumping to new highs or that gallon of milk suddenly costing 50% more, that we wake up.”

The truth is that surviving — and thriving — in a high inflationary environment takes finesse. To contend with higher prices, you have to ensure your investments are spread out and keeping up with inflation. Diminished purchasing power often means you’re spending more and saving less. Yes, it’s scary, but it’s not insurmountable. But we’ve got you covered. To protect yourself in the current environment start with these five steps: 


As of August, food prices were up 10.9%, clothing cost 5.1% more, and dining out will set you back an extra 7.6%. Let’s not forget the double-digit hike in gas prices. All those increases lessen your ability to save. That’s why fine tuning your budget when inflation is running high is important. Think realistically about the money coming in and going out and then try to identify ways to cut back. Once you’ve fine-tuned your budget, try to stick to it. This can help you fight inflation and prevent you from making too many impulse purchases. “Economic arrows don’t always point up, and infrequent events like hyperinflation or the pandemic can devastate your income, savings and investments,” says Statler. 


The Federal Reserve has taken steps towards a “soft landing” by raising interest rates in an effort to slow down the economy without a crash. And while we hope the move is successful, for now, it’s making it a lot more costly to take out a mortgage, finance a new vehicle and use a credit card. In a rising-rate environment, you pay more if you carry a balance on a variable rate credit card. That’s why now is a good time to focus on paying off high interest rate debt that may rise even higher.  In a rising rate environment, tackling the highest interest rate debt first is always the best move. “Understand your debt and what you owe not just for next month but into the future,” says Statler. 


When to start collecting Social Security benefits is as unique as the individual. However, there’s one thing we know for certain no matter your earning history or age: If you take it too early, you’re leaving significant money on the table. Of course with prices for everything soaring, it’s understandable that you may want to start collecting benefits sooner rather than later, but if it’s possible for you to delay, you’ll come out on top in the years to come. (The longer you wait the more you make!) If you begin receiving benefits at your full retirement age, you’ll get a 100 percent of your monthly benefit. If you delay until after your full retirement age, your monthly benefit continues to rise until you reach the age of 70. If living long is in your genes, then you may want to prioritize that larger payout down the line, rather than getting assistance with inflation today. 


Diversification is absolutely fundamental to a sound investment portfolio — it’s important to have your money spread among stocks, bonds and other income-generating investments. But diversification isn’t one of those things you can “set and forget” for decades, particularly when we’re in a fast-changing environment with inflation. That’s because investments that performed well when inflation was running at 2% may not be so hot when the Fed is raising interest rates or prices are soaring.  “At this point, if you haven’t done anything yet, make sure you balance back to your long-term risk target,” says leading retirement expert Anne Lester, Education Fellow with the Alliance for Lifetime Income and former Head of Retirement Solutions for JPMorgan Asset Management. “The most important thing to do is to build an investment portfolio that can weather inflation.” Don’t beat yourself up if you haven’t thought about rebalancing lately — prior to the pandemic, inflation was low for many years, so most people just didn’t give it much thought. 


Once you’re in retirement, reliable income becomes king, which is why many people turn to annuities to protect their portfolio and secure their future. Annuities are long-term contracts with insurance companies in which you invest your money and in return get guaranteed income paid out at regular intervals. With an annuity, you never have to worry about where your guaranteed money is coming from, if you’ll have enough money if the market tanks, or if you might outlive your savings. Think of it like a pension (which is basically an annuity), something that protected and gave peace-of-mind to millions of Americans in generations past. Annuities are one of the few retirement products that provide guaranteed income regardless of the ups and downs of the stock market. There are even annuities that come with cost of living adjustments that compensate for higher inflation. “When you know you have a source of protected income coming in from an annuity, you’re likely to withdraw less from your market investments, allowing them to ride out the down markets and continue growing your portfolio again,” says Statler.


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