10 Things to Tell Clients About Inflation, Social Security COLAs

Zachary Bachner, an investment advisor representative at Summit Financial Consulting in Sterling Heights, Michigan, says benefits will not keep pace with the current rate of inflation, and "this causes the need to have assets or sources of income elsewhere that can appreciate more than the standard COLA increase," he told ThinkAdvisor.

Many retirees live on fixed income sources, so advisors should explain to them they "either may need to make additional withdrawals right now or they need to reassess their budget and find ways to lower expenses," Bachner said.

6. Tell clients they need to "weather the storm" and make new investments.

For Luis Strohmeier, a wealth advisor and partner at Cincinnati-based independent RIA Octavia Wealth Advisors, "what we tell clients to do is, number one: You've got to weather the storm," he said. After all, "nobody goes and fixes their boat while it's floating in the middle of the storm; you can't do that."

And one key way to help weather the storm is to convince clients that now is a good time to make new investments, he said.

7. Explain the impact of inflation on different types of investments.

It is important to explain to clients that "one of the riskier things you could do in a high-inflation time period is to kind of pull assets, perhaps maybe out of a market [or] out of something with some upside and put it into CDs that are paying less than a percent today," Hopkins warned. "Bond yields and CDs, which some people do as their safe investments, might actually be costing them money" now, he noted.

Joy, meanwhile, is "working to inform clients about the impact of inflation on different types of investments," she said. For example, she explained: "Inflation can have a different impact on stocks vs. bonds, especially depending on the level of inflation."

To weather a storm like this, "you want to be in investments that are more inflationary-proof," Strohmeier said he tells clients. Utilities, health care, communications, oil, commodities, precious metals — "those are things that are going to do traditionally better during an inflationary process than say more cyclical things," he said, adding: "I like regional banks [and] companies with consistent dividends," as well as communications, big oil companies and cloud services companies.

8. Discuss wages and compensation, including potential raises, with working clients.

When it comes to inflation and COLAs, it is definitely a factor for not only retirees on a fixed income, but also working clients, Joy noted. In a perfect world, their wages would keep up with the more inflationary environment. But advisors should explain to clients that "just a 2 or 3% raise may or may not keep up with inflation this year, so advocating on your behalf [at work] would be an important conversation to have with clients on wages and compensation," she said.

9. Discuss clients' travel, remodeling and other plans that could be especially costly now.

"Everybody's looking to make up for lost time when it comes to travel and you're going to pay the price in a year like this," Joy warned. Many people are also shopping for real estate or to make home improvements, and those sectors are "under inflationary pressure" now, she said.

"So it's really important for clients to be specific about what their goals are in the short and mid-term so that adjustments can be made based on costs," she explained. Tell clients if they were going to do a $50,000 remodeling project this year or next year, they may need to adjust those numbers significantly higher based on the ability to access labor and materials now, she said, adding that some clients are postponing or being patient with their decisions.

10. Tell clients to focus on what they can control or change.

"People like to talk about things that they think they may be able to affect or control or change and there's less of that feeling" with COVID-19, one of the other big concerns that many clients have this year, Joy said.

On the other hand, you can adjust a portfolio to deal with inflation, she noted. "I always like to say focus on what you can control, and the things you can control with inflation are to make sure that your goals don't need to be adjusted," she said.

Pictured: Jamie Hopkins of Carson Group