Liz Weston: 3 Ways to Fight Inflation and Win the Long Game

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Inflation is scary. Groceries, gasoline, plane tickets, car purchases, utilities: in many areas, your purchasing power is decreasing as prices continue to rise.

Fear can make you want to do something, anything! – to retaliate. Fortunately, many of the best measures for fighting inflation align well with proven money management practices. Here are three areas where smart strategies get even smarter as prices rise.


Advice on “inflation protection” for your investments often mentions gold, commodities, and real estate. If you already have a well-diversified portfolio, beware of short-term strategies that could backfire, says Michelle Gessner, a certified financial planner in Houston.

“Your best bet is stocks,” says Gessner. “Investing in stocks is one of the best hedges against inflation.”

Gold has not been a reliable inflation hedge since the 1970s, Gessner notes. Commodities – basic goods such as agricultural products, fuel and metals – can be profitable when inflation rises, but long-term returns have been disappointing. For the 20-year period ending April 29, for example, the S&P 500 stock index more than tripled while the Bloomberg Commodity Index rose about 30%.

Real estate has a better balance sheet, both in times of inflation and over the long term. But owning property directly can be a hassle, which is why many financial planners recommend mutual funds, exchange-traded funds, or real estate investment trusts that invest in office buildings, apartments, hotels, malls and other commercial properties.

But even there, people shouldn’t go overboard, says Gessner. She recommends that her clients invest 3% to 4% of their portfolio in real estate.

“Everything in moderation,” says Gessner. “More is not necessarily better.”


Inflation can be good for people with fixed rate debt such as mortgages, auto loans, or federal student loans. As inflation erodes the purchasing power of a dollar, borrowers are able to repay their debt with money cheaper than what they borrowed.

Even without inflation, however, financial planners say most people are making better use of their money than prepaying debt with low fixed rates. Only after you’ve maximized your retirement savings, built up an emergency fund, and paid off all other higher-rate debt should you consider making additional payments on a mortgage, for example.

“Having a 3% mortgage isn’t such a bad thing if you can take that money and do something better with it,” Gessner says.

Consider targeting any credit card or other variable rate debt, as this is likely to become more expensive as the Federal Reserve raises interest rates to fight inflation. If you can’t pay off that debt quickly, consider fixing the rate. You may be able to use a personal loan to pay off your credit cards, for example, if you have good credit. If you’re having trouble paying off your debt, a nonprofit credit counselor can help you review your budget and discuss options. You can get referrals from the National Foundation for Credit Counseling at


One of the best inflation hedges retirees can have is a maximum Social Security benefit, says William Reichenstein, research manager for Social Security Solutions, a claims strategy website. Social Security benefits are adjusted each year for inflation, so the larger a person’s benefits, the more money they receive from each annual cost-of-living adjustment.

The Social Security Administration has increased benefits this year by 5.9%. The Senior Citizens League, an advocacy group for older Americans, has forecast an 8.6% increase in benefits next year.

People can start receiving Social Security as early as age 62, but their benefits are permanently reduced if they apply before full retirement age, which is currently 66 to 67. year. After full retirement age, those who delay their claims receive an annual increase of 8%. their benefit, called deferred retirement bonus. Benefits are maximum at age 70.

Your benefit increases with the cost of living whether you’ve started receiving it or not, so you don’t miss inflation adjustments when you delay your claim, Reichenstein says.

Most people who reach retirement age will live past the break-even point where the biggest benefit they get from being late goes beyond the little checks they spend in the meantime, Reichenstein says. It is especially important that the highest income of a married couple delays as much as possible. The higher of a couple’s two benefits is the one the survivor will receive after the death of the first spouse.

Additionally, deferring Social Security benefits could help middle-income earners reduce their overall tax burden and leave them with more after-tax money to spend, Reichenstein adds.

The way Social Security benefits are taxed creates a “tax torpedo” – a sharp increase and then a decrease in the marginal tax rates that many retirees pay on their earnings. (A marginal tax rate is the amount of additional tax paid for each additional dollar of income.) Delaying Social Security and tapping into retirement funds instead can lessen the effects of this torpedo for middle-income earners. who might otherwise see their marginal tax rates double, says Reichenstein.

“Goods and services are purchased with after-tax dollars, not pre-tax dollars, so that’s another reason to consider delaying a Social Security benefit,” he says.


This column was provided to The Associated Press by personal finance website NerdWallet. The content is for educational and informational purposes and does not constitute investment advice. Liz Weston is a NerdWallet columnist, certified financial planner and author of “Your Credit Score.” Email: [email protected]. Twitter: @lizweston.


NerdWallet: How to protect your spending power from inflation