How to Protect Your Retirement Income From a Prolonged Inflation Surge

You may be aware that over time, inflation can chip away at your retirement income, making it harder to keep up with everyday expenses. But while it's natural to expect some amount of inflation in retirement, a prolonged surge like the one seniors have been dealing with in recent years could be extremely detrimental to your long-term financial health.

It's important to have a plan in case persistent higher prices come into play during your retirement. Here are some you can take to protect your income in that scenario.

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1. Build a portfolio that can outpace inflation

During your wealth-building years, you may be investing your IRA or 401(k) primarily in the stock market for growth. In retirement, you may be inclined to mostly ditch stocks in favor of assets that are more stable.

But if you go this route, you could end up with a portfolio that trails inflation. Rather than run that risk, plan to keep a good chunk of your savings invested in stocks as a retiree.

Stocks have historically delivered higher long-term returns than inflation. So even though you might crave the stability of bonds, stocks should be an important part of your inflation-beating strategy.

2. Create flexibility in your retirement budget

While choosing the right assets for your retirement account can help you stay ahead of inflation, it's also important to be flexible. If living costs remain elevated for a long stretch of time, you may need to be willing to scale back in certain areas to preserve your savings.

That could mean taking a big vacation every other year instead of every year. Or, it could mean spending less money on entertainment to ensure that you have ample funds to cover your essential needs, like healthcare, food, and transportation.

If reducing spending is really undesirable, another option is to work part-time to generate extra income. But that still requires flexibility on your part, as it could mean making changes to your routine instead of your bills.

3. Maximize Social Security

If you're eligible for Social Security but haven't signed up for benefits yet, consider how delaying your claim could affect your long-term income. Waiting beyond full retirement age increases your monthly benefits, providing a larger base of guaranteed income for the rest of your life.

Not only that, but Social Security benefits are eligible for an annual cost-of-living adjustment, or COLA. The larger your benefits are to begin with, the more money each COLA might put in your pocket.

Inflation may be unavoidable, but it doesn't have to derail your retirement. By maintaining a diversified portfolio, keeping your budget flexible, and boosting your Social Security checks, you can put yourself in a better position to preserve your purchasing power even if prices remain stubbornly elevated.

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