Recently CNBC published an important article that highlights the growing financial concerns of retirees as the nation faces unprecedented inflation. Reverse mortgages can be a tool to help protect against these concerns.
From the article:
Rising inflation has startled many retirees, who now worry about outliving their savings.
The consumer price index for June, measuring the cost of food, gasoline, housing, utilities and other goods, increased by 0.9%, the largest one-month change since June 2008, the Labor Department reported Tuesday. Prices jumped by 5.4% from the previous year, the fastest surge in almost 13 years.
Although Federal Reserve officials say these price hikes are transitory, many retirees are feeling the sting with higher costs at the grocery store and gas station and with other day-to-day living expenses.
“It’s top of mind with our clients,” said certified financial planner David Mullins, wealth advisor at David Mullins Wealth Management Group in Richlands, Virginia.
As older investors scramble to preserve buying power, some experts suggest making shifts to portfolios. Here’s what retirees need to know.
While inflation hasn’t fueled dramatic portfolio changes, Mullins has been striving to add “more breadth and depth across asset classes” since the third quarter of 2020.
Historically, many retirees have relied on portfolios with 60% stocks and 40% in so-called fixed-income assets, offering steady earnings through bonds, money market funds, certificates of deposit and other investments.
However, over the past several months, Mullins has reexamined a portion of the 40% allocation, seeking to manage risk and receive higher returns through diversification.
“I think it’s really important that clients consider nontraditional asset classes,” he said.
For example, he has added commodities, which may include metals, agricultural products like grains and pork, through a “broad basket index,” rather than picking sectors, in addition to allocations of gold.
“Commodities typically perform well in inflationary environments,” he added.
He has also included Treasury inflation-protected securities, along with exposure to real estate, which may offer hedges against inflation.
“When you think about the stakes inflation could have on outliving your money, that’s when you have to play some offense,” Mullins said.
As bond yields decline, retirees have also needed to shift their mindset about conservative portfolios, said Linda Erickson, CFP and founding partner at Erickson Advisors in Greensboro, North Carolina.
While some retirees may have relied exclusively on bonds or certificates of deposits in the past, these options will no longer protect their long-term buying power, she said.
“We have to produce a portfolio that will actually grow more than inflation, and we have to look at this every year,” she said. “We are not in a set-it-and-forget-it environment.”
To beat inflation, retirees may need to lean more heavily on stocks, she said. For example, they may consider buying certain dividend-paying assets.
Some portfolios haven’t changed
While the loss of buying power has sparked concerns among many retirees, not all advisors have made immediate changes to clients’ portfolios.
“I haven’t shifted any portfolios this year because of the threat of inflation,” said Larry Luxenberg, CFP and founder of Lexington Avenue Capital Management in New City, New York.
Client allocations may change if inflation becomes, “more ingrained as it was in the 1970s,” he said. But typically, he saves adjustments for shifts in a client’s financial situation.
Moreover, advisors like Christopher Flis, CFP and founder of Resilient Asset Management in Memphis, Tennessee, say they have designed portfolios to protect clients’ long-term purchasing power. However, there haven’t been significant shifts due to the recent upticks in prices.
“You’ve got to give it some time before you start reacting to something that could be transitory,” he said.
Read the full article on CNBC here.
Jan Jordan is a Reverse Mortgage Specialist serving the Fort Collins, Loveland, Greeley, Longmont, Boulder and other Front Range areas of Colorado. Click here to contact Jan and learn if reverse mortgage is right for you.