Deciding when to retire during inflation can be scary

Picking a date to retire is a big decision, even in the best of times. What does one do in an environment of rapidly rising inflationary pressures?

After all, being retired means living on an income that is likely to be the same or less than you had when working, and there will be no more opportunities to improve your lot with a new job or a raise.

Relax, and consider this: You have more control over your situation than you might guess, and even the gray cloud of rising inflation has a silver lining when it comes to investing.

That silver lining is rising bond yields. It’s hard to remember for many of us, but extremely low bond interest income is far from normal.

Morningstar researchers have put the returns from large company stocks at 10% per year since 1926. Care to guess the bond return?

Between 5% and 6%. That’s not bad at all, and it’s far better than the rates we’ve seen in recent years. 

Meanwhile, inflation since 1926 has run at 2.90% per year, so uninvested cash lost value at that rate. 

Investors of a certain age will remember when owning a significant chunk of bonds in a portfolio was a positive. Those steady returns helped level out the ups and downs of comparatively volatile stocks.

It’s only been in recent history that investors have been forced by low rates to turn elsewhere for income. Now, with interest rates set to rise, bonds are coming back around. 

The problem, naturally, is what to do right now. Rates will be going up, but that could take much of this year and into the next to happen, and there could be unexpected global events and economic adjustments in between.

Retire with ease

Anyone on the edge of retirement understandably will find the next 12 months aggravating. Income from bonds won’t appear fast enough. Managing risk in a changing portfolio can be tricky.

Our approach at Rebalance, always, is to think holistically about money and investing. It’s critical, for instance, to have a well-developed, written financial plan.

A personal plan will take into account the many variables that can affect your need for income, month-to-month and over several years of a changing lifestyle.

Perhaps you plan to downsize, or immediately travel, or pay for a wedding? A financial plan with a concrete budget turns big decisions into simple choices made with ease.

Meanwhile, the Investment Committee at Rebalance foresaw inflation coming and made early moves in our clients’ portfolios to offset that increased risk. Our paramount goal is to help you and your family live well and retire with more.

A properly managed investment portfolio works hand-in-hand with a good financial plan to make sure that your goals are achievable and that the ride from here to there is drama-free.

That’s the living well part: getting what you want from your investments without losing sleep.

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