How to Protect Your Retirement Savings Against Inflation?

Samuel Mitchell

Updated on:

Retirement Savings

Are you worried that inflation could render your retirement savings useless or even reduce their value? If that’s the case, let me assure you that you’re not the only one.

As a matter of fact, some 90 percent of Americans worry that their retirement savings wouldn’t last them through those golden years when they don’t have an active income.

However, help is at hand. Because in this article, I will be discussing the various ways to protect your retirement savings against inflation.

Protecting Your Retirement Savings Against Inflation

There’re quite a few things that you’ll have to do to protect your savings against inflation. All these are time-tested and proven methods. Therefore, you could use them safely. Understandably, you would have to adapt some of these methods to suit your own financial situation and other circumstances.

Here’re the best ways to protect your retirement savings against inflation.

Understand Time Value of Money

Time Value of Money or TVM is something most people don’t take into consideration while saving for their retirement. Therefore, I will start by explaining what’s TVM and how it affects your overall retirement savings.

Let’s consider you have $200. Of these, you stash away $100 in a savings plan at the bank and the other $100 at your home. After a year, you would find that your $100 kept at home can buy you stuff only worth $95.50. This means, the overall value of your money has gone down by 4.5 percent over 365 days.

In contrast, the money you put on a savings plan has grown to $104.50. This means, even if the value of $100 has actually gone down, your money has not been affected by the depreciation due to the interest it collects.

The lower value of money occurs because of TVM. And to save enough for your retirement and ensure the value of your money doesn’t go down during those golden years, you have to ensure that your money fetches returns that are higher than the TVM.

Meaning, you need to find ways and means to invest in a manner that you would consistently get higher returns of eight percent to 10 percent per annum. That way, your money can remain safe against the dropping Time Value of Money.

Stay Invested in Stocks

Normally, people tend to sell stocks the moment their prices soar. This can give you some profits in the short-run but eventually, it won’t work to your benefit in the longer run. That’s because you would be missing the opportunity for your stocks to grow exponentially.

Therefore, the trick is to stay invested for as long as you can. It’s best to buy stocks that show promise of the best returns in the longer run. Here’s something to remember: that despite frequent ups and downs in the stock market, the value of your holdings will always surge. Therefore, there’s no need to panic and sell stocks when the prices drop temporarily.

Furthermore, you should also watch your portfolio and eliminate poor-performing stocks. Instead, use the money you get from their sale in buying stocks whose values are rising frequently.

Buy a House

Real estate is the best investment that you can make while you’re earning. That’s because you can rent out a house and get rent, which could help you meet all or at least a major portion of your expenses. Normally, good houses fetch good rents.

At the same time, a house is also an asset that you could sell anytime, should the need arise. Real estate prices also show dips and surges. However, they do go up over a period of time to give you assured good returns.

Renting your second house is also an excellent way to get a passive income. You can also rent the house through Airbnb for guests that visit your city frequently and want to stay away from hotels. This is also a superb source of secondary income and could help you make a lot of money without actually having to dig into your savings.

Read: How to Buy a House in 2024

Find a Side Gig

As a senior, the trick is never to stop working so that you continue having a steady and fixed source of income. I’m not implying that you start working on a full-time job once again. Instead, you could find a side gig and work for a few hours a day.

Other than an income, a side-gig also comes with several other superb benefits. It keeps you alert and active and helps you to feel gainful in society. Since you would have all the time in the world after retirement, a side-gig can prevent boredom.

There’re lots of side-gigs available for seniors online. The best thing is to find one in your own field. You could also work as a freelancer during your free time and make a lot of money. This ensures you have enough income for all your needs.

Delay Social Security Payments

A lot of financial experts actually ask you to delay taking Social Security payments. That’s because you can get a bigger check when you really need the money. Of course, that doesn’t mean you’ll get more money. 

Instead of regular Social Security checks, a bigger amount can make quite a lot of difference to your life. It would help you to invest in something and get superb returns. Or you can use the money to counter any emergencies, if they arise.

Consider Annuities

Annuities can give you a fixed income after retirement. Therefore, they should form part of your retirement options for savings. They're quite a few plans where the annuities paid to you will actually increase according to the rising cost of living.

You could consult a financial advisor on such kinds of annuities rather than shopping for them yourself. Admittedly, a financial advisor doesn’t come free. Yet, they could help you stave off poverty during your golden years.

In Conclusion

All the tips to protect your retirement savings against inflation come from real-life people that are doing so and have succeeded. There’re no reasons why you can’t also do the same. And the best time to start using these tips is right now.

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