How to Inflation-Proof Your Retirement Savings
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Here's your money briefing for Monday, March 7th. I'm J.R. Whelan for The Wall Street Journal. 7.5% inflation is tearing through the money you've budgeted for things like groceries or gas or rent. But it's also putting the squeeze on funds you might have set aside for long-term savings in your IRA or 401k. But figuring out how to inflation-proof your portfolio is no easy task.
You have to make the decision looking forward and what are the expectations going forward for inflation and commodities and stocks.
On today's show, we'll call on our retirement reporter, Ann Turgason, to take us through some ways of protecting your nest egg against inflation. That's after the break.
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If you're like millions of Americans, you've been building up your IRA or 401k retirement account to be sure money is there when you need it down the line. But high inflation can take a bite out of those savings before you get a chance to use them. So how can you hedge against inflation by making adjustments to your retirement savings? WSJ reporter Anne Tergesen is here with some ideas. Hi, Anne. Thanks for being with us. Thanks very much. So, Anne, we see the effects of inflation pretty clearly when we go food shopping or we fill up at the gas tank. But how does it affect people's retirement nest egg?
How is inflation affecting long-term retirement accounts like IRAs and 401(k)s?
So when it comes to money put away for retirement, it's like other kinds of money where all of a sudden you see the purchasing power of what you've saved start to get eroded. So the question is, how do you keep up with inflation? How do you invest in things that are going to appreciate in a way that keeps up with inflation?
Yeah, so let's talk about some of those ways to offset the effects of inflation. You know, for a lot of people with a 401k or IRA, they probably have a portion of their retirement savings in stocks. So what adjustments should they consider there?
The good and bad news about stocks is that, you know, when inflation rises in a way that's unexpected, stocks often get hit and they go down. But over long periods of time, stocks have tended, since the period when we've had data, which is from 1926, stocks have, on average, have done better than inflation. So that's over long periods of time. So, you know, at least in theory, if you have a decent amount in stocks, you may see short-term problems due to unexpectedly high inflation. But over the long horizon, The good news is that stocks have tended to keep pace with inflation. So there's that. But for people who are inclined to want to make adjustments, a professor at Duke University who's done some research on this suggested shifting money away from some of the worst performing sectors during periods of rising inflation, which is consumer durable stocks were the single worst performing sector.
Those are companies like automakers and into some of the better performing sectors, which have included energy and natural resource stocks. The professor at Duke also said that his research suggests that real estate investment trusts, which are called REITs for short, may also do well during periods of rising inflation since landlords in the past have often been able to raise their rents to keep up with the pace of inflation.
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