Financial planning is essential for everyone, but even more so for women. That’s because women are likely to enjoy longer lives, and, unfortunately, many are still paid less than their male counterparts. On top of that, women are more likely to take time out of the workforce for child or elder care, which can compound a lack of savings.
With busy lives, it's easy to procrastinate on financial planning. You think it will take a long time to get your finances in order, so you wait. But that decision can be costly…especially today since another factor makes paying attention more critical- the resurgence of inflation.
Don’t Ignore Inflation
Ronald Reagan said, "Inflation is as violent as a mugger, as frightening as an armed robber, and as deadly as a hitman."
Dramatic, yes, but don’t let that distract you from the message. Like it or not, inflation can be a wrecking ball on retirement plans.
Fortunately, you can fight it with the right planning…as long as you don’t put it off. Ideally, work with a financial planner who has the skills to help you create a road map for your future. If you’re planning on your own, here are some tips you can use:
Don’t Get Too Conservative
To defeat inflation, you’ll need to earn more on your investments, so don’t get too cautious.
For example, if you're nervous about the stock market and you shift a chunk of your retirement savings into cash, you might lose money long term. If inflation is running at 5% and you’re only earning 2%, that means you’re losing 3% per year in purchasing power.
That’s the danger of inflation. Worse, it is invisible. You're not going to see it show up on your account statements, but it's there, eroding your wealth over time.
As financial planners, we have many strategies to help you counter it. But the key is, you need to start now, not later, so you have the power of time on your side.
Do Strive to Increase After-Tax Earnings
Today the country is mired in trillions of dollars of debt. So along with planning for higher inflation, we need to expect higher tax rates in the future. Fortunately, some of the tools you can use to counter inflation can also help you fight tax rate increases.
Health Savings Accounts offer you a rare triple tax advantage. You can save immediately because your contributions lower your taxable income. Everything can be withdrawn tax-free in the future for qualified medical expenses (yours or a family member’s). It becomes a retirement account with taxes due on the withdrawal if you don't use it. If you don't need the money now, you can pay medical expenses out of pocket and let your money grow tax-free. Later you can withdraw it tax-free as a healthcare reimbursement.
Roth Accounts, such as a Roth IRA or Roth 401(k), allow you to contribute after-tax dollars. While you don't get the upfront tax break, these plans can provide you with a tax-free income stream in retirement. Every dollar you don’t pay in taxes helps you counteract inflation and compound your wealth.
Don’t Forget Catch-Up Contributions
Do Prioritize Your Retirement
You only have one chance to save for your retirement. If you don’t do it right, there’s no bank that is going to offer you a retirement loan. Children and grandchildren, however, can get loans for education, houses, and many other things. So while it’s fine to help at times, remember that retirement savings should be the first priority.
There's plenty you can do to counter inflation and prepare for a confident, secure retirement. But the key ingredient is time. Start now, and you'll have the most time to prepare. Put it off, and you may find yourself the victim of inflation in years to come.
Questions and Consultations
If you have questions or if you’d like to schedule an appointment to discuss your finances, contact us today.
The opinions voiced in this material are for informational purposes only and are not intended to provide specific advice to any individual. Consult your legal, tax, and/or financial advisor to determine what is appropriate for your situation.