Inflation Can Hurt Retirees Big Time. Here's How to Protect Yourself.
Key Points
Inflation can eat away at your buying power in the course of retirement.
Delaying Social Security makes the program's cost-of-living adjustments more meaningful.
Investing strategically gives you a leg up.
- The $23,760 Social Security bonus most retirees completely overlook ›
You might think of inflation as a recent problem that's been plaguing consumers. But while inflation may be in the news a lot lately, the reality is that it's a perpetual problem -- and a potentially big one for retirees.
When you're living on a fixed retirement income, even modest increases in everyday expenses could have a huge impact on your quality of life. But it's important to recognize that inflation is not going away, and that it's something you need to plan for. Here are some steps you can take to avoid getting hurt by inflation in retirement.
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1. Delay Social Security
The nice thing about Social Security benefits is that they're eligible for an automatic cost-of-living adjustment (COLA) each year. But if you want to get more out of those COLAs, aim to delay your claim past full retirement age.
If you were born in 1960 or later, full retirement age for Social Security is 67. But your benefits get an 8% increase for each year you wait, until you turn 70. The larger your benefits are to begin with, the more value those COLAs are apt to have through the years.
2. Keep part of your portfolio positioned for growth
It's a good idea to scale back on stocks in retirement to manage your risk. But you shouldn't dump your stocks completely. Playing it too safe could put you at risk of losing out to inflation.
Instead, aim to keep a portion of your portfolio invested in growth vehicles like individual stocks or ETFs (exchange-traded funds). Of course, you'll want to diversify the stock portion of your portfolio to manage your risk. But you may find that you're able to well outpace inflation with the right asset allocation.
3. Manage your spending and prepare to be flexible
You can't control how rampant inflation is during your retirement. But during periods when costs seem to be skyrocketing, being careful and flexible could work to your advantage.
If you're able to cut back on discretionary spending during periods of high inflation (especially if the stock market isn't doing particularly well), that should help preserve your savings. And if there are years when your portfolio gains outpace inflation to a large degree, don't automatically increase your spending. Instead, save the extra money for a rainy day.
Inflation is one of the most persistent threats retirees face, but it doesn't have to derail your financial plans. With the right strategy, you can keep up with or beat inflation so you don't lose buying power as you get older.
The $23,760 Social Security bonus most retirees completely overlook
If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income.
One easy trick could pay you as much as $23,760 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Join Stock Advisor to learn more about these strategies.
View the "Social Security secrets" »
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