3 Steps to Inflation-Proof Your Retirement

In the course of retirement planning, there are certain things you probably know to think about -- your annual budget, the cost of healthcare, and how to withdraw efficiently from your savings. But there's another important facet to focus on -- inflation.

Over time, living costs are likely to rise. And even modest increases during retirement could eat away at your savings. That's why it's crucial to have a plan to beat inflation. Here's what yours might look like.

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1. Continue to invest in stocks

Many people scale back on stocks as retirement draws near to reduce portfolio risk. But one thing you don't want to do is dump stocks completely.

You may not want to keep 80% of your portfolio in stocks. But a fairly even stock/bond split could offer the right combination of stability and continued growth, allowing your assets to outpace inflation and help you avoid losing buying power.

2. Don't overdo your cash cushion

Retirees are often advised to maintain a cash cushion. That way, if there's a stock market downturn, you can leave your investments alone and simply use your cash to cover expenses rather than lock in losses permanently.

But one thing you shouldn't do is go overboard on cash. It's a good idea to maintain a large enough cushion to cover one to three years' worth of expenses. And you can perhaps go a bit higher if you'll be keeping a large share of your portfolio in stocks.

But resist the urge to keep 10 years' worth of costs in cash. While it might seem like the safest bet, inflation could easily outpace the amount of interest your cash can earn. In other words, too much cash could cause you to fall behind.

3. Delay your Social Security claim

You get a choice as to when to claim Social Security. The earliest age to sign up is 62. And you'll get your monthly benefit without a reduction if you wait until full retirement age to file, which is 67 if you were born in 1960 or later.

But for each year you hold off on claiming Social Security past full retirement age, up until you turn 70, your benefits get a permanent 8% increase. That not only gives you more buying power from the start, but it also gives you more inflation protection.

Social Security benefits are eligible for a cost-of-living adjustment each year. The larger your monthly checks are at the start, the more money those raises are apt to put in your pocket as they arrive.

Inflation is something you can't avoid in retirement, but you can take steps to beat it. The more you plan in advance for rising costs, the less likely you may be to fall behind and struggle financially.

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