Worried Inflation Will Hurt Your Retirement? Here's What to Do.

Key Points

• Rising costs can easily erode retirees' buying power.

• The right investment portfolio can help you outpace inflation.

• Being strategic with Social Security could add another layer of protection.

• The $23,760 Social Security bonus most retirees completely overlook ›

There are certain things you can do to increase your chances of being financially comfortable in retirement. They include saving really well ahead of time, being willing to maintain a more frugal lifestyle, and withdrawing from your nest egg carefully.

But even if you try your best to carve out a comfortable retirement for yourself, there's one factor that could catch up to you -- inflation.

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The more living costs rise over time, the more it can erode your buying power. That's the bad news. The good news, though, is that there are steps you can take to beat inflation as a retiree -- and enjoy your senior years without financial worries.

1. Don't give up on stocks

Retirees are often told to ditch stocks in their portfolios to a large degree as a means of unloading risk. In doing so, though, you take on another risk -- not having your portfolio do better than inflation.

That's why you should not give up on stocks entirely during retirement. Rather, be strategic with them.

For one thing, make sure they only comprise a portion of your portfolio, and keep some of your nest egg in bonds and cash. Secondly, you may want to focus on dividend stocks, which may be able to provide a steady stream of income that can help offset a rise in costs.

You may also want to load up on some ETFs, or exchange-traded funds, for diversification -- particularly those that specifically focus on companies with a strong dividend history.

2. Save extra for healthcare

Healthcare costs have a tendency to outpace inflation on a broad level. That can be a problem for retirees, who commonly have larger healthcare bills than their younger peers.

Since rising healthcare costs could seriously eat into your retirement budget, one thing it could help to do is save extra for medical expenses specifically. If you have a health savings account, fund it during your working years but avoid taking withdrawals for near-term expenses if you can. That way, you can reserve that money for retirement, when your medical bills might be higher.

3. Claim Social Security at the right time

One of the most important financial decisions you might make for your retirement is deciding when to file for Social Security. Though you're allowed to sign up as early as age 62, waiting until full retirement age to take benefits helps you avoid a reduction. And if you delay your claim past full retirement age, your benefits get an 8% boost for each year you do, until you turn 70.

Because Social Security benefits are eligible for an annual inflation-based cost-of-living adjustment, the more money the program pays you each month, the more protection against inflation you get. Also, the more generous your Social Security benefits are, the less you might have to raid your savings year after year, allowing you to stay invested in assets that outperform inflation as well.

It's natural to be worried about inflation in retirement. But with the right strategy, you can mitigate that concern substantially and focus on doing the things you love instead.

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.

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