Inflation won’t magically go away, but there are ways to protect yourself, now and later, from its impact.
The The Federal Reserve raises interest rates is a limited tool to fight inflation. Hiking rates also take time to affect the broader economy. Experts say inflation will be here for a while – probably until the end of next year.
It’s also what consumers expect. A majority of Americans (80%) worry that rising inflation will continue to have a negative impact on their income’s purchasing power over the next six months, according to the latest. Quarterly Market Perception Study from Allianz Life (opens in new tab).(1)
Of concern is how unprepared Americans seem to be for this period of historic inflation. More than half (54%) of respondents said they have stopped or reduced their retirement savings due to inflation. And 43% said they had to deplete their retirement savings because of rising inflation.
Social Security Among Lifetime Benefits That Help Inflation
One big signal of the effect of inflation is the almost unprecedented cost-of-living adjustment made to Social Security payments this year. Social Security payments will increase nearly 8.7% next year. It would be the largest increase in Social Security checks since 1981, according to the Social Security Administration (opens in new tab).
This makes Social Security the only benefit people receive in their lifetime that can help offset inflation. Some annuity products also has the ability to increase income payments to mitigate the effect of inflation.
Even if you are eligible but not collecting Social Security yet, you’re not missing out on the increase. Don’t panic and think you better start claiming the money. These increases, along with future cost-of-living adjustments, will be added to your estimated future benefits if you are age 62 or older.
Consumer Behavior Affects Inflation
In the next month, the way inflation moderates over time will, in part, depend on the actions of daily consumers. If we expect inflation to continue, and act as if it will, the strength of the dollar will continue to decline. It could be a self-fulfilling prophecy.
Here, we will talk about what you can do in the short term and look ahead to your future to protect yourself from the risk of inflation.
What you can do in the short term
Here’s the thing – how long we experience high inflation depends on consumer behavior. People, in general, still spend a lot of money even in The Federal Reserve has increased interest rates.
A great way to keep your finances on track inflation is the delay of major purchases. This also helps you avoid taking on new debt.
At the same time, many products are going to be marked. During the height of the COVID-19 pandemic, Americans are buying a lot of consumer goods. Many big box stores don’t have a good supply of things like TVs. And people who spend almost all their time at home want a new television.
Retailers are ordering more inventory, but with the pandemic abating now, more people are excited to buy new TVs. So, the retailer has a lot of inventory to sell so it will sell.
While it may be tempting to buy a TV on sale at a bargain price, think before you buy. It is more important to do boring things with your money, like make sure you have a solid cash reserve, and avoid paying interest on balances on credit cards.
Remember this – just because you bought it on sale doesn’t mean you’re saving money. You spend money! And if you buy on a credit cardThe purchase may end up costing you more than the original price.
Still, short-term actions like no-spending months will not set you up for long-term financial well-being if this inflationary record continues.
What you can do in the long run
Inflation will not disappear tomorrow. You should start helping to protect yourself from the risk of inflation. Three in four Americans (75%) said in the Allianz study that they are worried about the rising cost of living affecting their retirement plans. You don’t want to have to work longer than you planned or have to take on a second job.
Consider continuing to invest, contribute to you 401(k), and make other financial decisions on behalf of your future self. The latest Allianz Life study found that the youngest age cohort – Millennials – were the most likely to say they have stopped or reduced retirement savings because of inflation. While 65% of Millennials said they were reducing or stopping retirement savings, 59% of Gen Xers and 40% of Boomers said the same.
Because Millennials have more time until retirement, money saved now is even more important, because it will have more growth. These are year of saving the key.
Now may also be a good time to meet with a financial professional. They can help you develop strategies to combat the effects of inflation today and help you prepare for a strong financial future. You will want to research how your investments can help protect your purchasing power over time and discuss the asset mix in your portfolio.
Planning for the future is very important. Talk to a financial professional about adding some protection to your portfolio to help mitigate the risk of long-term inflation affecting your retirement.
(1) Allianz Life conducted an online survey, Quarterly Market Perception Study 2022 Q3, in September 2022 with a nationally representative sample of 1,004 respondents aged 18+.
This content is for general educational purposes only. It is not, however, intended to provide fiduciary, tax or legal advice and cannot be used to avoid tax penalties or promote, market, or recommend any tax plan or arrangement. Please note that Allianz Life Insurance Company of North America, its affiliated companies, and their representatives and employees do not provide fiduciary, tax or legal advice or counsel related to social security or Medicare. Clients are encouraged to consult a tax advisor or attorney or the Social Security Administration (SSA) office for their specific situation.
The guarantee is backed by the financial strength and claims paying ability of Allianz Life Insurance Company of North America. Variable annuity guarantees do not apply to the performance of variable subaccounts, which will fluctuate with market conditions.
The product is issued by Allianz Life Insurance Company of North America. variable products distributed by its affiliate, Allianz Life Financial Services, LLC, member FINRA, 5701 Golden Hills Drive, Minneapolis, MN 55416-1297. 800.542.5427 www.allianzlife.com