As President Biden introduces his first two major legislative initiatives, the $1.9 trillion COVID-19 relief bill and the new $2.3 trillion infrastructure proposal, the risk of inflation is on many American’s minds. Though we don’t know how much the current government spending will affect the value of the U.S. dollar, Clark Kendall, CFA, AEP, CFP President & CEO of Kendall Capital says now is the time to start planning for inflation in your retirement savings.

The projection for inflation in 2021 is only 2.24%, which is not outside of the normal yearly inflation rates. According to Kendall, though inflation has not increased by any extremes over the past 40 years, future retirees should still take inflation seriously when planning their investment portfolio.
You need to think, “How much will a 2021 U.S. dollar be worth in 2050?”

Let’s use someone’s retirement account as an example. If someone has saved enough to spend $50,000 a year for their 35-year retirement that starts in 2021, but inflation continues to increase at an average of 3% every year. Taking inflation into account, this individual will need:

• $67,195.82 a year by 2031

• $90,305.56 a year by 2041

• $140,693.12 a year by 2056

The last thing you want is to run out of money before you die. You really do not know how much inflation will affect your retirement, but luckily there are ways to plan and minimize the risk.

Investment & Savings Recommendations to Combat Inflation:

• Save more than you think you’ll need.

• Diversify your portfolio with short-term investments for short-term needs and long-term investments for long-term needs.

• Don’t use below-expected inflation rates 10-year treasury bonds for long-term protection of purchasing power.

• Dog of Dow:  dividend-paying stocks such as AT&T, IBM, Johnson & Johnson, Proctor & Gamble, Kellogg are great ways to protect long-term purchasing power.

• Consider rolling over to a pre-taxed Roth IRA. You’ll pay taxes now, at a lower rate, and withdraw funds tax-free in retirement when you’re in a higher tax bracket.