Inflation vs Retirement in the 60+ years

In the world of personal finance there is a saying that goes:

“If you think it’s hard to save right now, wait until you’re retired and you’ll see how hard it is to live without savings.”

To which we could add that it is much more complex to be retired without savings and with the highest inflation since the 1980s.

According to a study carried out by Allianz and published in Forbes, for every 2 Americans, 1 indicates that they feel that with these price increases, when they stop working, they will not be able to cover basic living expenses.

Now, the good news is that most economists don’t expect inflation to be much higher than it is today.

Rather, they think that in two or three years it should already be under control. But just like when a big storm passes, this situation will leave its mark.

Do not think that everything will go down immediately, prices will only stop growing as they have been doing and everything will be expensive.

That is why in this article we will share 5 strategies that Hispanics who are about to retire in the United States or those who are already retired can use to fight against this inflation in your retirement and not die financially in the attempt:

1.- Postpone Social Security benefits:

Despite the many criticisms that many make of Social Security benefits when you retire.

There is no doubt that it is one of the most important sources of income for retirees in the USA, more than 50 million people receive this benefit and for 70% of retirees it represents the largest income they will receive.

On the other hand, it has an extremely beneficial feature:

In this inflationary period, called by its acronym in English COLA (Cost-of-living Adjustment), which allows the amount you will receive to be periodically adjusted by the increase in prices.

For example, for the year 2022, the average benefit amount was increased to 5.9%, this being one of the highest adjustments ever made.

Although it is true that we know that inflation is well above that value, it is still a great advantage.

Now, the big problem is that the majority of Hispanics or Latinos are immigrants, so it is very likely that they have not contributed for 35 years to take advantage of the amount they are going to receive.

So while the average worker will receive an amount of approximately $1,657 after the 2022 adjustment, the Latino immigrant will receive a much lower amount, for not having contributed for so many years.

Therefore, before panicking, we suggest that one of the best strategies is to try as much as possible to postpone the application for this benefit with Social Security, thus allowing:

– Accumulate more years of contributions to improve your average.

– On average, for each year you wait, you will achieve an 8% increase in the amount of your benefit. This calculation is for reference only, but a person who begins to receive this pension at age 62 will receive almost 24% less than one that waits until age 67.

2.- Invest or change your investment portfolio:

There is a big difference in this new inflationary period versus the one lived in the eighties.

At that time they could leave their money in a Certificate of Deposit in the bank they trust and earn a very good interest rate.

To give us an idea, in 1981 this type of banking instruments paid an average of 18% (according to data from the St. Louis Federal Reserve).

Therefore, as a saver, you did not have greater incentives to look for where to invest your money looking for higher risk levels.

Now, the current situation is diametrically different, since an average Certificate of Deposit does not yield even 0.25% (according to Bankrate.com) and inflation is above 8%.

Many people over 60 will say: Well, I understand that my money in the bank account deteriorates every day due to the destructive effect that inflation has on my purchasing power.

But they make the following mistake and say: Because of my age and since it is money for my retirement, I must have everything invested in bonds.

But it turns out that, right now, while it is true that interest rates have been rising, the yield paid by the bonds is well below inflation.

Therefore, investors over 60 years of age must include a percentage of shares in their portfolio.

And why shares, if rather they say that while you get older you should not invest in shares? since it is one of the few investments that has historically shown that it can beat inflation over time.

Read well that we are saying invest in shares and not speculate with shares that are two totally different concepts.

What we are suggesting is investing in a broadly diversified way, preferably using index funds or Exchange-Traded Funds (ETFs).

Those that allow to have a little of all the sectors of the economy. Remembering that speculating or playing the casino as many see it, it is precisely about believing that you will be able to continuously determine which is going to be the winning horse or in this case the winning action.

Of course, before investing in the stock market, always consult your trusted financial advisor.

3.- Keep working and contributing to a Roth IRA

Of course, one of the simplest measures that everyone proposes is to reduce your expenses and follow a budget.

But in practice we see that it is not as easy as they tell us, since although it is true when one retires there are many expenses that go down.

For example, you no longer need to buy expensive clothes to go to work or you have the need to buy the latest model car, because really what they will say begins to make less sense.

It is no less true that the expenses for medicines and medical situations begin to rise and perhaps you would love to take that trip that you always wanted to do, so we could not say that your costs are going to disappear.

So a good option is to continue working and take advantage of this new trend of remote work.

Where, although it is true, you will not be able to work with a position like the one you had before you retired, it can be an excellent option to generate some income from your home.

Remembering that as long as you can generate income from work you will be able to continue contributing to an Individual Retirement account called ROTH IRA.

Which has no restrictions as to how old you are, being able to contribute about $7,000 a year at this time and invest them and without having to pay taxes on the income produced by this money.

Serving this ROTH IRA account, as a new source of storage for when you are already in your retirement or being able to use it as a mechanism to leave a legacy to your loved ones since you will not be forced to withdraw that money when you reach a certain age as it happens with IRA accounts.

4.- Restructuring or Downsizing

We know that after all you’ve worked and fought to finally have the home of your dreams, even thinking about moving could be the worst suggestion.

But also seen financially, having a house that may be too big for your retirement when your children are about to leave or have already left.

It can represent very important costs in maintenance and not to mention a concept called Opportunity Cost.

The opportunity cost: what it implies is that, if I sell this house and buy a smaller one with the extra money that I have left, I could invest it and make it grow so that when I need it I can use it.

Let’s see this in a very practical way if you invested that money in a portfolio at any time you will be able to make a partial or total withdrawal for the amounts you need for your day to day.

On the other hand, if I were invested in a property, it is extremely complex to say today I am going to sell a small piece of this room or I have to sell half the bathroom.

While it is true, many people will tell you that you can finance yourself using the value of your home.

We do not feel that it is the best for this moment in which interest rates are rising and rather part of the restructuring that you must carry out is to close all your debts so that when you retire and do not have a constant source of income you do not have to be paying a fee on loans and much less on credit cards.

5.- Go to a Financial Planner

In financial matters and much more when we talk about your retirement, it is extremely complex to take objective measures where your feelings, experiences and emotions do not play against you and make you make decisions that may not be the most appropriate.

It is there where people decide to go to a financial planner, this being a professional who sees countless cases like yours on a daily basis.

A financial advisor has advanced tools that allow you to visualize the actions you must take to achieve that goal of independent retirement and maintaining the quality of life that you have set for yourself.

Seen in another way, it is good that if your head just hurts one day, you take a pill.

But if instead you see that you have an important health situation, people normally go to a specialist for help and it would not occur to them to self-medicate.

That is exactly what you should do if you are thinking about how to optimize your retirement.

Many ask us where I should go and that is where the professionals who are CERTIFIED FINANCIAL PLANNER™ are your best option and you can find the one you want by accessing the following link: https://www.letsmakeaplan.org/

In conclusion, there are many options to take to fight this inflation and avoid dying financially in the attempt, the important thing is not to worry but to take care of yourself.

Alonso Rodríguez Segarra

Founder & CEO Advise Financial

advise-financial.com

Alonso is a “CERTIFIED FINANCIAL PLANNER™” who is dedicated to increasing the Financial Well-being of nurses, physicians and successful immigrants in Florida and Texas. With more than 20 years of experience in the world of finance, always working for the best interest of his clients, under fiduciary criteria.