Article Author:
Associated Press
Liz Weston Of Nerdwallet
Inflation is scary. Grocery, gas, airfare, car purchases, utilities: in so many areas, purchasing power is declining as prices continue to rise.
Fear can make you want to do something. — fight back. Thankfully, many of the best moves to combat inflation align nicely with proven money management practices. Here are three areas where smart strategies get even smarter when prices are rising.
Invest with the Long Term in Mind
"Anti-Inflation" Advice Your investments often refer to gold, commodities and real estate. However, if you already have a well-diversified portfolio, beware of short-term strategies that can backfire, says Michelle Gesner, Houston's Certified Financial His Planner.
"Stocks are your best bet," says Gessner. ``Investing in stocks is one of the best inflation hedges he has in existence.''[30][31]Gold has not been a reliable inflation hedge since the 1970s, Gessner points out. Commodities (basic commodities such as agricultural commodities, fuels and metals) can turn a profit when inflation spikes, but the long-term returns are disappointing. The S&P 500 Stock Index has more than tripled, and the Bloomberg Commodity Index has risen about 30%.
Real estate has performed better in both inflationary and longer term periods. But owning real estate directly can be a hassle. That's why many financial planners recommend mutual funds, exchange-traded funds, or real estate investment trusts that invest in office buildings, apartments, hotels, shopping centers, and other commercial properties.
But even there, he says, people should not go too far. She advises clients to invest her 3% to 4% of her portfolio in real estate.
"Everything in moderation," says Gessner. “More is not always better.”
Pay off your debt the smart way
It's good for those who have Inflation reduces the purchasing power of the dollar, so borrowers can pay off their debts with less money than they borrowed.
That said, even in the absence of inflation, financial planners say most people are doing better with their money than paying the debt up front at a low, fixed rate. Only after you've exhausted your retirement savings, built up your emergency fund, and paid off all other high-interest debt, should you consider making additional mortgage payments, for example.
"Even if the mortgage rate is her 3%, it's not so bad if you can do something good with that money," she said. says Gessner.
Consider targeting credit cards and other variable rate debt as the Federal Reserve is raising interest rates to combat inflation. If you can't pay off this debt quickly, consider fixing the interest rate. For example, if you have good credit, you may be able to use a personal loan to pay off your credit card. If you're struggling to pay off your debt, a nonprofit credit counselor can review your budget and discuss your options. www.nfcc.org.
Delay Social Security Get a referral from the National Foundation for Credit Counseling at
. William Reichenstein, Head of Research at Social Security Solutions, a billing strategy website, said: Social Security benefits are adjusted annually for inflation, so the bigger the benefit, the more money you get from the annual cost of living adjustment.
The Social Security Administration has increased his benefits this year by 5.9%. The Senior Citizens League, an advocacy group for American seniors, expects his benefits to increase by 8.6% next year.
People can start Social Security when he is 62, but benefits are permanently reduced if they apply before retirement age (currently he is 66 to he is 67) . An 8% increase in benefits per year, known as delayed retirement benefits. The benefits will be maximum when he is 70 years old.
Benefits increase your cost of living whether you start receiving them or not, so you won't miss out on adjusting for inflation if you delay applying, he says.
Most people who reach retirement age will live well past the ``break-even point,'' and the significant benefits of delaying retirement will be Reichenstein says it's more than a small check you miss. It is especially important for couples with higher incomes to postpone as much as possible. The greater of her two benefits for a couple is what the survivor gets after the death of the first spouse.
They also said that delaying social security payments could help middle-income earners reduce their overall tax burden and make more after-tax money available. Reichenstein added.
The way social security benefits are taxed creates a "tax torpedo" of sharply rising and then falling marginal tax rates that many retirees pay on their income. (The marginal tax rate is the amount of additional tax paid for each dollar of income increased.) Alternatively, delaying Social Security and using retirement benefits could double the marginal tax rate. For some middle-income earners, the impact of this torpedo can be reduced. Reichenstein says.
"Goods and services are purchased in after-tax dollars, not pre-tax dollars, which is another reason he considers deferring social security benefits. ’ he says.
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This column was written by an individual for his Associated Press was provided to Financial website NerdWallet. Content is intended for educational and informational purposes and does not constitute investment advice. Liz Weston is a Certified Financial Her Planner and author of "Your Credit Score" She is a columnist for NerdWallet. Email: lwestonâ†*nerdwallet.com. Twitter: â†*lizweston. 85}