Since the latter part of 2021, inflation has been soaring. That’s put a lot of pressure on consumers — particularly those living paycheck to paycheck without any money in savings to fall back on.
Rampant inflation has been hurting retirees, too. Although Social Security got a generous cost-of-living adjustment going into 2022, the recent rate of inflation is already rendering that raise inadequate.
It’s not surprising, then, that 71% of Americans are worried about inflation’s impact on their retirement readiness, according to recent Fidelity data. If you share that concern, there’s an important approach to retirement planning you’ll need to take.
Invest aggressively for maximum growth
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Hopefully, part of your retirement planning involves you making regular contributions to an IRA or 401(k) plan. But the money in your retirement account shouldn’t just sit in cash. Rather, it should be invested so it grows into a larger sum over time. More so than that, it should be invested aggressively so it grows at a rapid enough rate to keep up with or outpace inflation. To that end, stocks are your friend.
Investing in stocks is inherently risky. You never know when the market might crash, sending your portfolio balance on a downward path. But if you want to grow your retirement savings at a rate that will beat inflation, stocks are the way to go.
This assumes, of course, that retirement is still many years away. As that milestone nears, you’ll want to shift over to safer investments, like bonds. But if you’re 10 years or more away from retirement, then it pays to put the bulk of your savings into the stock market — and there are several ways you can go about that.
How to choose the right investments
Hand-picking stocks isn’t something everyone is comfortable with. If the idea of having to assemble your own stock portfolio makes you nervous, there may be an easier solution — loading up on broad market index funds.
Index funds are passively managed funds whose goal is to match the performance of whatever benchmark they’re tied to. An S&P 500 index fund, for example, will have the objective of performing as well as the S&P 500 itself.
The great thing about index funds is that they take the guesswork out of investing — and they can be a much less stressful means of building a portfolio. They also offer instant diversification, which is an important thing to have.
On the other hand, if you’re comfortable with the idea of choosing your own stocks, you might manage to beat the broad market — something index funds alone won’t let you do. To this end, you don’t need to go overboard and buy shares of 57 different companies. But you should aim to own 15 or more stocks across a range of market sectors.
What specific stocks should you focus on? That depends on your strategy. Some investors go after stocks that offer a lot of value relative to their share price. Others focus on those with the most growth potential. It’s not a bad idea to incorporate both strategies into your plans.
Don’t let inflation wreck your senior years
The cost of living tends to rise over time, so it’s important to invest your savings in a manner that will leave you with plenty of buying power come retirement. Putting money into stocks is a great bet in that regard, whether you do so by investing in index funds, shares of individual companies, or a combination of both.
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The $18,984 Social Security bonus most retirees completely overlook
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