Rising inflation has startled many retirees, who now worry about outliving their savings.
The consumer price index for June, measuring the cost of food, gasoline, housing, utilities and other goods, increased by 0.9%, the largest one-month change since June 2008, according to the Labor Department.
Although Federal Reserve officials say these price hikes are transitory, many retirees are feeling the sting with higher costs at the grocery store and gas station and with other day-to-day living expenses.
“It’s top of mind with our clients,” said certified financial planner David Mullins, wealth advisor at David Mullins Wealth Management Group in Richlands, Virginia.
As older investors scramble to preserve buying power, some experts suggest making shifts to portfolios. Here’s what retirees need to know.
Shifting assets
While inflation hasn’t fueled dramatic portfolio changes, Mullins has been striving to add “more breadth and depth across asset classes” since the third quarter of 2020.
Historically, many retirees have relied on portfolios with 60% stocks and 40% in so-called fixed-income assets, offering steady earnings through bonds, money market funds, certificates of deposit and other investments.
However, over the past several months, Mullins has re-examined a portion of the 40% allocation, seeking to manage risk and receive higher returns through diversification.
“I think it’s really important that clients consider non-traditional asset classes,” he said.
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For example, he has added commodities, which may include metals, agricultural products like grains, pork and other goods, through a “broad basket index,” rather than picking sectors, in addition to allocations of gold.
“Commodities typically perform well in inflationary environments,” he added.
He has also included Treasury inflation-protected securities, known as TIPS, along with exposure to real estate, which may offer hedges against inflation.
“When you think about the stakes inflation could have on outliving your money, that’s when you have to play some offense,” Mullins said.
As bond yields decline, retirees have also needed to shift their mindset about conservative portfolios, said Linda Erickson, CFP and founding partner at Erickson Advisors in Greensboro, North Carolina.
While some retirees may have relied exclusively on bonds or certificates of deposits in the past, these options will no longer protect their long-term buying power, she said.
