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Retirement Savings: Why Hedging Inflation Is Important

By Advisor Perspectives
Wealth Management


Inflation has been calm for so long that many retirement investors have overlooked its potentially corrosive effects. But for defined contribution (DC) plan portfolios designed to last decades, we believe inflation remains one of the greatest potential risks, making inflation-hedging assets critical. In fact, the vast majority of respondents to the 2017 PIMCO DC Consulting Support and Trends Survey supported offering a variety of inflation-hedging strategies in a DC plan’s core investment menu or in a custom target-date strategy.

Although inflation may seem a distant threat, even modest inflation can prove devastating to retirees who depend on income that does not adjust with inflation. After 20 years of 3% annual inflation, for instance, $50,000 in retirement income would buy only about $27,000 worth of goods and services; with 5% inflation, the value shrivels to only about $18,000.

Read more at Advisor Perspectives.

Photo: Frits Ahlefeldt

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