Inflation: The Biggest Threat to Your Financial Independence

June 2, 2022
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It’s no secret that high inflation rates have been affecting our economy. There are numerous factors at play, including the economic recovery coming out of the pandemic. The stock market has taken major hits. The cost of living is rising rapidly. Labor and supply costs have gone up dramatically.

Inflation vs. Financial Independence

Inflation is one of the biggest threats to long-term financial independence. Not only can it affect your investments now, but the cost of living increases could be a problem for your retirement years. It is very important to plan for inflation and make adjustments to your financial plan as necessary. There may be changes you make now based on current inflation challenges. In addition, your long-term plan should be designed to account for potential inflation in the future.

Early Retirement Planning

Those seeking an early retirement are most likely to be impacted by inflation in their later years. People following a “traditional” retirement plan and retiring after the age of 65 may not feel the sting nearly as much because they only have so many years left. However, it’s a different story if you plan to retire early.

Think about someone who retired a few years ago at the age of 50. They may have 30, 40 or more years left in life. When a major period of inflation happens like we are experiencing right now, that person may not be fully prepared for the significant cost-of-living increases. They weren’t planning to pay $6 for each gallon of gas. Someone who was planning to live off of $60,000 a year for the next 30 years may have a challenge in front of them when the cost of living suddenly shoots up to $80,000 per year.

Traditional retirement planning assumes a 3% inflation rate, but right now the rate is much higher and we can never fully predict the future of our economy. If we learned anything from the last two years, it’s that we have to expect the unexpected. Your retirement savings and investment plan needs to account for potentially higher rates of inflation. Cushions need to be built in and their needs to be room for adjustments along the way.

Developing Your Retirement Plan

Whether your retirement is 30 years away or 5 years away, there are important steps you need to be making now to better prepare yourself for an uncertain financial future. Put away as much as you can and be smart with a diverse investment portfolio that will survive any ups and downs in the stock, mutual fund and bonds markets. Real estate should be a major priority. Owning your retirement property outright will be a great hedge against inflation and your overall retirement living expenses if you are not worried about mortgage payments and high interest rates. Owning additional investment properties is wise because they will generally benefit from inflation and rising property values. That equity may go a long way if you need it down the road.

The perfect retirement plan and overall financial plan will be different for every individual and family. You’ll need to determine what will work best for you and plan for your ideal retirement future, while also making sure you can life the lifestyle you want until that time comes. There are so many different things to consider, which is why it helps to have a trusted financial advisor on your side. This is how you reach the ultimate goal of financial independence, in spite of challenges like inflation, market crashes and other economic turmoil.

Contact Illumination Wealth today to talk with one of our experienced financial experts. Let us help guide you on the road to financial freedom!