Does Inflation Need to Impact My Lifestyle?

Right now, everyone is feeling the impact of high inflation rates. And despite the concerning headlines in the news, history has shown us that higher inflation rates should eventually lead to higher returns in the stock and bond market, especially for those who remain steadfast in a long-term investment approach. It is just a matter of when.

Personal Inflation Rate

When economists talk about inflation, they look at the consumer price index (CPI), which is the national average of a fixed basket of goods. However, this average does not necessarily reflect your personal inflation rate.

Yes, everyone is impacted by inflation, but it is important to emphasize that not everyone is impacted by it in the same way. For example, a homeowner who is locked into a fixed mortgage rate is not necessarily experiencing the same rate increases as a renter.

“Not all goods are increasing at the same rate,” said Jarrett Solomon, CFP®, Partner at CTWM. People react to changing prices by adjusting their personal spending habits, such as offsetting the increasing cost of beef products by buying more chicken.

So, what measures can you take to minimize the impact of inflation on your current lifestyle?


Reduce, Substitute or Eliminate

For retirees or those who are close to retirement, periods with a higher inflation rate can be stressful because they are trying to maintain a consistent spend rate from their portfolio while combatting rising prices.

During times like these, it is critical to collaborate with your advisor and be thoughtful about how and where you spend money and whether certain expenses can be altered.

“The math doesn’t lie,” said Solomon. “Look at your household budget from both a macro and micro level. Know the number you need to live the life you want to within the bounds of your portfolio and recognize the spending habits that have the potential to put your long-term plan at risk.”

Remember, you are in control of your expenses and an advisor can help you look for opportunities to reduce, substitute or eliminate goods/services, while still maintaining your current lifestyle.

While not specific to times of high inflation, choosing to delay your Social Security benefits is another viable strategy. Delaying the start of your retirement benefits will only increase the future amount you collect. “When it comes to Social Security, waiting can pay off,” concluded Solomon.  

Goal Prioritization

If you are still working or actively accumulating wealth, it is still beneficial to examine your budget for potential expenses to eliminate.

“Rising inflation can make it more challenging to achieve our goals,” said Solomon. “If your goal is to build up your savings for retirement, consider what items you can remove from your budget temporarily so that you can continue to meet your financial obligations while also saving for your goal.”

If this means you need to reassess how much you are setting aside during this period of high inflation, take the necessary steps to do so while still progressing toward you objective.

How a Financial Advisor can Help

The importance of working with a trusted financial advisor cannot be understated, especially during times of high inflation. Remember, investments do not grow in a straight line. It is the job of an advisor to consider every possible scenario that may impact your financial plan, so you are not left scrambling in the moment.

“An advisor can ensure that you are taking the appropriate amount of risk based on your individual goals and determine how to stay on track with your long-term plan,” said Solomon. “At CTWM, we call this purposeful planning.”

Remember, there is opportunity in a down market and an advisor can help you to find and act on these opportunities, such as tax loss harvesting.

It is important to remember that market volatility and inflation are a natural part of full market cycles. An effective financial plan should be crafted in such a way that it already accounts for these types of unknowns, yet still provides you with the comfort and peace of mind to know you can sustain your current lifestyle during tough times.

If you have questions or are interested in learning more, please contact the Connecticut Wealth Management team at 860-470-0290 or by filling out the contact form.