Higher inflation means advisors need to be more efficient in positioning client assets for retirement, says Wade Pfau, professor of retirement income at the American College of Financial Services and a prolific author, his most recent book being the “Retirement Planning Guidebook.” He also writes the Retirement Research blog with Bob French and Alex Murguia.
In our ongoing VIP series, Pfau noted that using reserve funds was a good way for retirees to get through this higher inflationary period. Here are his responses to our series of questions.
Inflation has jumped 7.9% over the last 12 months. How would you counsel advisors to prepare clients for either pre- or post-retirement portfolios with this threat? What are the best options now?
Higher inflation requires being more efficient with positioning assets for retirement expenses. Rather than using traditional bonds, [Treasury inflation-protected securities] will help manage high inflation, and annuities with lifetime income can provide an extra kicker beyond the bond interest alone. A well-diversified investment portfolio, over time, provides opportunity to keep pace with inflation.
The Social Security COLA, which was raised to 5.9% this year, is now lagging current inflation rates. What is the best way for advisors to help retirees to counteract the crunch they are taking to their Social Security benefits (especially if they already are collecting benefits)?