How to protect your retirement portfolio against inflation


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Rising inflation suddenly worries Americans even more about their retirement.

The prices of goods and services have increased in recent months and, for the first time in a long time, it is a priority for consumers.

“We’ve had such a favorable environment from an inflation point of view, so I think we’ve all gotten a little complacent,” said Christine Benz, personal finance manager at Morningstar. “Inflation has been so low for so long.”

In fact, inflation is now the number one concern of retirees, according to a survey by Personal Capital and Kiplinger’s Personal Finance. 77% cited declining purchasing power as a major concern, followed by healthcare (74%) and the financial strength of social security (71%).

Still, there are strategies to help protect your retirement portfolio against inflation, depending on how close you are to retirement.

In your young years

You should have cash, or cash, savings to cover about three to six months of living expenses in an emergency, as well as savings for any other planned expenses, like buying a house. That’s it, according to certified financial planner James Burton, director of marketing at Personal Capital.

“It’s tempting to keep a lot of money in cash because it seems safe, but the truth is, it’s not secure,” he said. “It’s likely to be eroded by inflation very significantly over time.”

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For example, consumer prices jumped more than 5% in July. Yet bank interest rates on savings accounts are well below 1%.

The bulk of your retirement portfolio should be in stocks when you’re under 50, Morningstar’s Benz said. The average annual rate of return on the S&P 500 over the past 20 years is 9.55%, according to FactSet.

“This should help you defend against inflation and should help it continue to grow above inflation,” she said.

Closer to retirement

In your 50s, start shifting your portfolio a bit more to safer assets, like fixed income, to protect yourself against a market shock in the early years of retirement, Benz said.

Some of your fixed income may be inflation-protected treasury securities. Like traditional Treasury bonds, TIPS are issued and backed by the US government. However, TIPS provide protection against inflation because the major part changes with inflation, as measured by the Consumer Price Index.

While not essential, you can also consider assets that have historically been correlated with inflation, such as commodities, she said. “They have shown some ability to hedge against inflation.”

You can also diversify your stocks by adding areas such as natural resources and energy, as well as real estate, Benz suggested.

In your 60s, you need to start seriously thinking about your source of retirement income. For many, Social Security is part of the equation and it is an inflation-adjusted benefit. In 2022, the cost of living adjustment could reach 6%.


Once you stop working, you will earn income from your retirement accounts. Benz suggests having around 20% of your bond portfolio in TIPS. You can also look at other categories such as commodities.

Historically, bad bonds have offered higher yields to hedge against inflation, although that is not the case at the moment, Benz said.

“Every stone has been turned over in search of yield,” she said. “You are probably not paid to take on the credit risk.”

Remember, even if you need an income, you are still saving for years to come when you retire.

“Retirement is not turning into a full cash situation,” said Burton at Personal Capital. “It is important to stay invested.

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