How to strategize for retirement as inflation hits 40-year high

Inflation in the U.S. hit a 40-year high in March as consumer prices rose a whopping 8.5% from a year ago. While inflation is usually associated with higher costs for groceries, gas and other living expenses, many Americans might also be wondering: Could inflation also break my nest egg? For Americans who are nearing retirement, one common concern is the potential impact of stock market volatility on their investments. “What we know is that if you experience a substantial loss within 10 years before retirement, that can really delay or impact your retirement plans for the rest of your life. It can have that big of an impact,” Walser Wealth Management President Rebecca Walser told CBS News. “So it is very important for people that are that close to retirement to really be cautious in this time where the market is coming back, where we do see inflation, we do see a lot of geopolitical unrest.” Since those factors could dampen market returns, Walser said people on the proverbial glide path to retirement might consider moving some of their money into Treasury Inflation-Protected Security (TIPS), U.S. government bonds that can “help mitigate the inflation impact at least for the short-term.” Traditionally, financial advisers have recommended that people assume an annual inflation rate of about 3% when planning for retirement. But with the U.S. now facing the highest inflation in decades, Walser said people should plan for higher rates.

Employer impact

For employers, adjusting their annual compensation and benefits to account for surging inflation can be tricky. “If you look at what happened between 2021 and 2022, a lot of employers stuck with the traditional 3% average annual increase because at that time they could say, well, maybe it’s temporary. It’s not really impacting long-term. And obviously employers don’t want to get locked into an inflation-adjusted salary if then the numbers come back down,” Walser said. As a result, more companies are implementing retention bonuses as a financial incentive for valued employees to stay on board. “After the Great Resignation of 2021, we had so many people exit the workforce that you already saw higher wage increases year over year, but also employers implementing a retention bonus to get people to stay. And this is a way they could also account for inflation, but not lock that price increase forever on that salary,” Walser said.