How to Protect Your Retirement Plan Amidst Rising Rates

5 Ways to plan for Retirement During Inflation

Retirement planning during a period of soaring inflation can seem precarious, but it doesn’t necessarily have to be.

For those who have already retired, there are some protections in place. As we witness the highest inflation rate in 40 years, we’re also seeing the highest cost-of-living-adjustment (COLA) for Social Security which means that although people will feel the difference at the gas pump and grocery store, the COLA should help absorb the soaring costs.

And for those who haven’t retired yet, there are actions you can take today to protect your retirement plan amidst rising interest rates—whether those plans are for the near- or long-term. Here are five considerations you can take into account to prevent inflation from devaluing your retirement savings.

1. A diversified investment portfolio is your friend

While it may not be the time to make many new investments, you’ll want to ensure the investments you currently have are sufficiently diversified.

Having a diversified portfolio reduces your vulnerability to risks in any particular stock or sector, which is helpful in a volatile market. Some investors also tend to be overconfident in their ability to time the market—but this is notoriously difficult. Instead, consult a financial planner like one of our CFS Advisors before making new investments, and learn the investment options available if you have a retirement plan sponsored by your work.

2. Stay the course with high-interest instruments

When you’re watching the market lose value, a normal impulse might be to liquidate your stocks and bonds before they’re worth even less. But any financial expert will advise you that panicking isn’t productive.

Instead, take note of any high-yield instruments that you can leave alone for a while, which allows them to accumulate value while you weather the current inflation storm. At the right credit union or bank, Certificates of Deposit (CDs) deliver much higher interest rates, especially if you can lock them in for a longer term. Meanwhile, short-term bonds can also provide satisfactory returns since their value will decline less than long-term bonds if the Fed continues to raise interest rates to fight inflation.

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Explore Citadel’s High Yield Savings account to see current rates.

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3. Minimize credit card debt

Unlike fixed-rate loans you might have for a mortgage or a car, the current interest rate hikes can have a noticeable impact on adjustable-rate loans and credit card balances. If this surprises you, it can really derail your monthly budget planning.

If you’re carrying any credit card debt, it would be wise to limit your discretionary spending and start paying the debt off. The average card currently charges an annual percentage rate (APR) of 20.05%.

4. Earn more with your savings account

Consider storing some of your money in a high-yield savings account. You may need to keep a minimum balance in order to qualify for the best annual percentage yield (APY). Currently, the most profitable high-yield savings accounts offer an APY of around 3.75%, which can certainly bode well for your bottom line as other interest rates are rising.

5. Control spending, so you’re ready for a rainy day

During uncertain times, an emergency fund—generally three to six months’ worth of living expenses in cash—can provide great peace of mind. Yet Americans increasingly have to dip into their reserves due to inflation. In fact, a 2022 survey found that 43% of respondents were extracting funds from their retirement savings just to cover day-to-day expenses.

This is where budgeting makes all the difference. Look at your bank and credit card statements from the past few months and track your expenditures to identify areas where you can cut back on your spending. Many mobile banking apps even offer money management tools. You may be able to funnel some of that money into your retirement savings, emergency fund, or credit card debt.

Dealing with inflation can be difficult, but remember that you’re far from powerless. By taking an intentional approach to managing your money, you can protect your retirement savings while maintaining a sense of financial security and control.

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