4 ways to help clients fight inflation

Inflation, if not addressed, can chip away at retirement savings

Inflation is a long-term reality. If clients do not deal with the risk of inflation properly, problems may occur. The more strategies to address the risk of inflation incorporated into a holistic financial strategy, the greater the chance of success in retirement.

Right now, we are experiencing inflation at the highest rates in decades. Inflation is up 7.7% in the last 12 months ending in September, according to the Bureau of Labor Statistics. In comparison, the average rate of inflation since 1922 has been 2.8%. 

Inflation hurts savers and increases interest rates, so consumers are worried.

The vast majority of Americans (80%) said they worry about rising inflation continuing to have a negative impact on the purchasing power of their income in the next six months, according to the 2022 3Q Quarterly Market Perceptions Study* from Allianz Life Insurance Company of North America (Allianz Life). And 75% said they worry the rising cost of living will affect their retirement plans.

A financial professional can help their clients incorporate strategies to mitigate the effect of inflation.

54%
of Americans said they have stopped or reduced retirement savings due to inflation
43%
said they have had to dip into their retirement savings because of rising inflation
61%
said they worry that if they don’t increase their retirement savings soon, it will be too late to have a comfortable retirement

How a financial professional can help

1

Show clients how inflation could affect their retirement expenses

With the length of retirements increasing, the potential risk of inflation to retirement is greater. You will want to analyze clients’ retirement income needs based on inflation’s impact on the potential of a longer retirement. 

Start by determining a client’s potential retirement income and consider the impact of inflation on their consumption basket. At a modest rate of inflation, costs could double in about 30 years. At today’s rates, prices will double even sooner.

2

Review the impact of high inflation and low interest rates of return during retirement

Determine a client’s retirement income sources and whether cost-of-living adjustments or increasing income opportunities apply to those sources of income. A client’s total rate of return may be different than what they anticipated.
3

Discuss guaranteed lifetime income options like annuities

Guaranteed lifetime income options like annuities can help address the risk of inflation. Some annuities include features that offer increasing income potential through either built-in or additional-cost riders to help alleviate inflation concerns.

4

Consider the rising costs of health care

Help clients understand options to pay for health care. Keep in mind that Medicare does not cover everything and supplemental insurance may be necessary. Options include long term care insurance policies and riders to help fill in the gaps. But, these add to your monthly expenses.

The potential for these features to help address inflation is not guaranteed and is dependent on a variety of factors.

Annuities can help you meet your long-term retirement goals by offering tax-deferred growth potential, a death benefit during the accumulation phase, and a guaranteed stream of income at retirement.

Fixed index universal life (FIUL) insurance provides long-term financial protection, financial reassurance for beneficiaries through the death benefit, and can help reduce the overall risk in a client’s portfolio.

*Allianz Life conducted an online survey, the 2022 3Q Quarterly Market Perceptions Study, in September 2022 with a nationally representative sample of 1,004 respondents age 18+.

Products are issued by Allianz Life Insurance Company of North America. Registered index-linked annuities (RILAs) are distributed by its affiliate, Allianz Life Financial Services, LLC, member FINRA, 5701 Golden Hills Drive, Minneapolis, MN 55416-1297. 800.542.5427 www.allianzlife.com

Guarantees are backed by the financial strength and claims-paying ability of Allianz Life Insurance Company of North America. Variable annuity guarantees do not apply to the performance of the variable subaccounts, which will fluctuate with market conditions.