This Is the Greatest Financial Shock Retirees Have Dealt With

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Rising living costs could impact your retirement. Read on to see how to deal with that. 

It’s not uncommon for retirees to experience their share of financial shocks, just as working people could experience the same. You might end up loaded with healthcare bills as a senior if a medical issue arises that Medicare doesn’t do a very good job of covering. Or, your home might need extensive repairs, causing you to have to raid your savings account to cope.

But in a recent Edward Jones survey, retirees today cited inflation as the greatest financial shock they’ve had to deal with. That’s not totally surprising, seeing as how inflation has been surging for the past two years, driving the cost of everything from groceries to utilities up.

If you’re worried that inflation has the potential to destroy your retirement, you should know that one savvy investing decision on your part could make it so you’re well-equipped to deal with rising living costs.

Go heavy on stocks to grow your wealth

You may be in the habit of funding an IRA so you’ll have funds to tap during retirement. But how are you investing your savings? If you aren’t going heavy on stocks while retirement is still a long way off, you’re basically doing yourself a disservice.

Investing in stocks can be risky, which is why some people may be hesitant to do it. But if you don’t invest in stocks, you run a different risk — retiring with a nest egg that falls short.

Let’s put it this way. Over the past 50 years, the stock market has delivered an average annual 10% return before inflation, as measured by the performance of the S&P 500 index. But let’s say you limit yourself to safer investments that only generate half that return. If you contribute $300 a month to your IRA over 40 years at an average yearly 5% return, you’ll end up with about $435,000.

On the other hand, let’s say you load your IRA with stocks or S&P 500 ETFs (publicly traded funds that invest in the index). If your IRA gives you an average annual 10% return, and you invest $300 a month over 40 years, you’ll end up with about $1.6 million in savings. That’s more than three times the nest egg you’d have with a more conservative portfolio.

Don’t be afraid to take some risk

It’s easy to see why the idea of investing in stocks can be daunting. But if you don’t invest in them, you might struggle to outpace inflation in your IRA. And that could prove very problematic once retirement rolls around.

Remember, branching out in your portfolio by buying stocks across a range of market sectors is a good way to minimize your risks. So is loading up on S&P 500 index funds, which give you instant diversification.

And just as importantly, you can lower your risks by holding onto your stocks for many years. With an IRA, that should be an easy thing to do, since that money is earmarked for retirement. That way, you can benefit from the strong returns the stock market is known to produce without losing sleep.

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