Inflation, which rose considerably last year, is likely to remain high through 2022, and some experts think that infrastructure legislation will only add to inflation. Throw in rising interest rates that were just enacted by the Federal Reserve, and you have a perfect cocktail of the three I’s—inflation, infrastructure, and interest rates—that could significantly impact retirement plans. Making adjustments to your retirement plan where needed could help mitigate any repercussions of the three I’s, and help boost assurance in your financial future.

Utilize Investments to Your Advantage During Times of Inflation

Rapidly rising costs of everyday expenses, like groceries and gas, can put a strain on retirement savings and assets. However, investments in hard assets such as real estate, commodities, and stocks typically appreciate during periods of inflation, which can possibly aid in offsetting the increasing price tags of goods and services.

For the more risk-averse investors, you might think about adopting a bucket approach, where your funds are divided into short-term, mid-term, and long-term categories, or buckets.

• Short-term: This bucket is for money that you anticipate needing now or in the near future (two to three years). These funds should be put in bank accounts, CDs, and short-term bonds.
• Mid-term: This bucket is for the assets in your portfolio that you expect to use in five to 10 years. You don’t want these assets to fluctuate too much, so think about investing in longer-term bonds, dividend investments, certificates of deposit, and fixed annuities.
• Long-term: This bucket is for growth. Money that you don’t expect to use for at least 10 years can be invested in stocks that will yield higher long-term rates of return.

Biden’s Infrastructure Bill May Provide Investment Opportunities

In November of 2021, President Biden signed into law The Infrastructure Investment and Jobs Act, which amounts to $1.2 trillion in spending. This is expected to amplify the current inflation headache as that extra money trickles through the economy. However, as with most government spending, some specific industries and companies will benefit from the output. Consider this when making any moves or adjustments to your investment portfolio in the near future.

Consider Bond Alternatives Among Rising Interest Rates

The Federal Reserve just raised interest rates by 25 basis points to help combat inflation, and it has six more increases planned for this year. Rising rates may cause an unfavorable reaction with bond fund values, so you might want to look into bond alternatives. Short-term bonds, floating rate loans, Treasury Inflation-Protected Securities (TIPS), and fixed annuities aren’t as sensitive to rising interest rates. A financial planner can help navigate the various risks associated with these alternatives.