At different times, inflation may be high or low, but, except in those rare periods of deflation, it’s always with us. During your working years, when you may receive boosts in your salary, you at least have the potential to keep up with inflation — but what happens when you retire? As a retiree, what can you do to cope with the rising cost of living?
Here are a few suggestions: Keep some growth potential in your investment portfolio. During your retirement years, you may want to move your portfolio toward a somewhat more conservative approach by owning investments that offer significant protection of principal. However, these same investments offer little in the way of growth, which means they are susceptible to inflation. Consequently, you’ll also need to own a reasonable amount in growth-oriented investments, such as stocks and stock-based securities. Of course, these investments will fluctuate in value as the financial markets move up and down, but by owning some more conservative investments, you can reduce the overall impact of market volatility on your portfolio.
Consider inflation-adjusted bonds. You might want to consider Treasury Inflation-Protected Securities (TIPS), which are indexed to the Consumer Price Index, so the principal increases with inflation (and decreases with deflation). Another inflation-adjusted Treasury security is the I bond, which differs from TIPS in that the principal doesn’t change but the interest rate does, every six months, based on a combination of a fixed interest rate and the inflation rate. Like all investments, though, TIPS and I bonds have various features and risks of which you should be aware before investing.
