Investments That Retirees in 2022 Can Make To Protect Against Inflation

Mark Hake

There is good news for retirees in 2022. For one, Social Social benefits to retirees will rise by 5.9% in 2022 over 2021, the largest increase since 1982.

I wrote about this last month and showed how you can expect to make almost 1/3rd more by age 70 if these existing trends stay in place.

But retirees or near-retirement investors should probably take some steps that they might not have done in the past. There are new dangers on the horizon that retirees must face squarely

Dangers on the Horizon for Retirees

One reason is that inflation is now spiking. On Nov. 10, the Bureau of Labor reported that the Consumer Price Index (CPI) rose 0.9% for the month of Oct. Moreover, in the past year, it has risen 6.2%.

It might not seem that 0.9% is a very high amount. But if you compound that number out for 12 months at the same rate it works out to a forward rate of 11.35%.

That is twice the 6.2% rate in the past 12 months. Now, before you get too worried, remember that the 6.2% is not an adjusted number for seasonality, whereas the 0.9% is seasonally adjusted. That means that inflation could be much lower than 11.35% going forward.

However, it does not augur well for the future. Even if future inflation is only 2/3rds of that rate it works out to 7.57%. That is higher than the 6.2% in the last 12 months.

So retirees should take care to begin to protect their assets from inflation. It's starting up again.

How to Protect Against Inflation

Historically both the stock market and real estate have done well in keeping up with the inflation rate. That implies that investors should keep more of their money in stocks rather than bonds. I have written extensively on InvestorPlace.com about how dividend-paying stocks do well for investors.

It also implies buying real estate assets like REITS (real estate investment trusts) and hard real estate purchases could help protect against higher inflation.

Lastly, one thing you might consider doing for a portion of your assets is buying some cryptocurrency assets like Bitcoin or Ethereum. This digital currency is also likely to outperform inflation over the next several years.

For example, so far this year Bitcoin is up over 92% year-to-date, as of Dec. 2. Putting a small portion of your total portfolio in this speculative asset could help. Just keep in mind it will also be volatile, so you will have to take the long view and not overdo it.

Here is the hard truth. If your assets don't make over 6% and inflation is higher than that - say 7.5%, your "real" return is negative. So just to make your assets grow by 3% on a real basis, you will need your assets to grow by 9.2% if inflation stays at 6.2%.

So far this year, the S&P 500 index is up 23.68%, as of Dec. 2. This implies that you need to stick to stocks (especially dividend-paying ones) rather than bonds, and real estate and crypto assets.

Keep in mind that this is not financial advice and I am not a financial planner. Your own situation could require a much different solution. Nevertheless, these are general principles you should be aware of now that inflation is on the horizon.

By the way, don't forget to fully "Follow" me and make sure to download the Newsbreak app to become a Registered Follower. This way you can also see all my articles in the past. Click on the link underneath my profile name.

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This is not financial advice and you should not rely on my analysis to buy or sell any stock, bond, REIT, or crypto, as I am not undertaking to induce you to buy or sell securities.

I am relying on the “publisher’s exclusion” in the Investment Advisers Act of 1940 to provide this information without any personalized or individualized investment advice.

This represents my analysis of retirement benefits and stocks and cryptos and it is not meant to provide you with specific advice in your own situation. I do not presently own these or related securities, but I may buy some of these in the coming weeks.

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Mark Hake is a financial analyst, investor, and Chartered Financial Analyst (CFA). He writes about US and foreign stocks as well as cryptos, hedge funds, and private equity. He previously ran his own hedge fund, investment research firm, and acted as CFO for a fintech startup. He focuses on finding value, arbitrage, and hidden asset opportunities.

Phoenix, AZ
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