Deflation: How To Protect Your Retirement
Last week, CBS MoneyWatch editor-in-chief Eric Schurenberg wrote a scary but informative post entitled Deflation: How to Protect Your Money. It had good investment ideas and insights, ones that are particularly appropriate for people planning their retirement.
Eric ended his post with a thought I totally agree with: "You don't know what's going to happen, and neither do the deflationistas, smart as they are." There's not a single person -- be they economists, commentators, or financial writers, including me -- who really knows for sure what the markets will do. So the best you can do is spread your bets -- which is why I recommend you diversify your retirement income.
Now let me build on Eric's post with some retirement planning and lifestyle ideas that'll help protect your retirement against deflation, but not ruin you in case we get inflation instead:
- Maximize your Social Security benefits by delaying the start date as long as possible. Social Security benefits keep coming each month, regardless of whether there's deflation or inflation, so getting as much out of the system as you can is a smart money move.
- If you're one of the lucky few with a substantial lifetime pension from an employer, make that pension as large as possible by delaying the start date. Like Social Security, the income will roll in each month whether there's deflation or inflation (although inflation will erode the buying power of a fixed pension over time).
- If you don't have a substantial pension, consider a "do-it-yourself" pension and buy an immediate fixed annuity. But consider waiting as long as possible to buy it in order to get a higher monthly income.
- Keep working. One of the best possible protections against inflation or deflation is to be valuable and contribute to society. See my recent post How to Find Retirement Work That Pays for some ideas.
- Pay off the mortgage on your house, possibly by refinancing with a 15-year mortgage at our current all-time low interest rates. Housing is the biggest budget item for most Americans, so if your current house meets your needs and is paid for, who cares if the value is going up or down?
- Minimize the money you spend on bills for medical and long-term care expenses through smart lifestyle choices. If you aren't spending money on these items, you don't care if the price goes up or down. And you'll have more money for other needs -- always a great outcome whether there's inflation or deflation.
- Only buy what meets your needs and what truly makes you happy, as I've written about previously. You won't care what happens to the prices of everything else if you're buying just want you really need.
More on CBS MoneyWatch
Deflation: How to Protect Your Money
Why You Need to Diversify Your Retirement Income
When Should You Start Social Security Benefits? Do the Math
How to Find Retirement Work That Pays
15 Year Mortgage: Record Low Can Help Retirement Strategy
How to Spend Less in Retirement
How Much Is Just Enough? A Smart Spending Strategy
View all articles by Steve Vernon on CBS MoneyWatch»
Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. Now he's a research scholar for the Stanford Center on Longevity, where he helps collect, direct and disseminate research that will improve the financial security of seniors. He's also president of Rest-of-Life Communications, delivers retirement planning workshops
and authored Retirement Game-Changers: Strategies for a Healthy, Financially Secure and Fulfilling Long Life and Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck.
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