Inflation has soared over the past year. Some think the new infrastructure legislation will add to inflation, and interest rates are set to rise through 2022.

These are the three I’s causing particular concern among retirees and those who are nearing retirement. What kind of impact could inflation, infrastructure, and interest rates have on their retirement plans?

Mitigating the impact of the three I’s – or finding ways to still come out ahead – could come down to making adjustments to your plan. Here are some options to consider:

Blunting inflation's impact on your retirement

The past decade of low inflation made it easy for many to forget the impact rapidly rising prices can have on everyday life. Most people nearing or in retirement might remember the high inflationary days of the 1970s and 1980s. Today, we are reminded daily about inflation when we visit the grocery store or park at a gas pump. All these increased costs can be a strain on retirement, especially when you have to draw down on your assets sooner than anticipated.

Historically speaking, hard assets like real estate, commodities, and stocks tend to appreciate during times of inflation, which could potentially help those investors offset the rising costs of goods and services.

For those who are concerned about the risks that these types of investments pose, you may want to consider using a bucketing approach that divides your money into short-term, mid-term, and long-term segments.

• The short-term money (assets needed for everyday expenses and the next two to three years) should be invested more conservatively in such things as bank accounts, CDs, and short-term bonds.
• Mid-term buckets include assets not needed for five to 10 years, such as longer-term bonds, dividend investments, real estate investment trusts (REITs), and fixed annuities.
• Inflation-hedging assets (consisting of primarily stocks) are held in the longer-term buckets.

Infrastructure: look for investment opportunities

Adding to the inflationary pressures are the effects of government spending on infrastructure. The Infrastructure Investment and Jobs Act was signed into law by President Biden last November. It consists of $1.2 trillion in spending, which is expected to add to the inflationary pressures as those dollars make their way through the economy. However, when there is change, it can also create new opportunities that didn’t exist previously. There will likely be industries and companies that will benefit from the spending, and it would be wise to think about who those benefactors may be when evaluating your investment portfolio.

With higher interest rates, consider bond alternatives

The downward trend in recent years helped raise the value of bonds, and many retirees use bonds as a less volatile holding in their retirement accounts. On the flip side, if rates rise to help calm inflationary pressures, it will likely have a negative side effect on bond values. One thing to consider would be alternatives that aren’t as sensitive to rising interest rates, such as short-term bonds and Treasury Inflation-Protected Securities (TIPS). It is important to discuss your options with your financial advisor before making decisions.

Inflation, government spending on infrastructure, and interest rates are things you cannot control. With good planning based on learning your options, you can make the adjustments necessary and possibly prevent these from becoming major bumps in your retirement road.