Inflation is a significant concern for retirees worried about the rising costs of necessities. According to a recent Global Atlantic Financial Group survey, 61% of retirees who invest assume that with low-interest rates and rising inflation, they won’t have enough saved to cover their lifetime expenses.
Retirees worried about exhausting their retirement savings early may find that inflation only adds to their concerns.
Here is a list of strategies to consider as you face rising inflation.
Rather than looking at what you have spent in the last couple of weeks, go through your bank and credit card statements from the previous three to six months. The further you go back in time, the more data you will have to get a more accurate idea of your average monthly expenses.
If your expenses have increased over the last couple of months, use this inflation increase percentage to calculate how inflation has impacted your bills.
If you find that you are spending more than you owe, it might be time to cut back on your expenses. Start by identifying nonessential expenses, like entertainment and eating out, and see if anything can be cut or reduced. If you have extra money left over every month, use it to pay off debt or put it in an emergency fund.
Suppose you are planning a vacation, considering remodeling your home, or buying a luxury purchase. In that case, you should consider postponing these purchases and allocating the funds toward your day-to-day living expenses. Then, when inflation has subsided, you will have the chance to make extra splurges into your budget again.
For those with substantial cash reserves, it might be time to spend those funds rather than selling stocks or making withdrawals from your retirement accounts. Don’t withdraw from your emergency fund when using cash to cover expenses. Your emergency fund is geared to helping you in unexpected financial circumstances.
One of the best ways to increase the longevity of your retirement savings is to reduce your monthly expenses. With rising inflation rates, paying down adjustable loans, like credit cards, will free up extra cash for living expenses.
For those who want to reduce their current expenses, a smaller home might help. Look for neighborhoods that cater to retirees or are easily accessible to supermarkets. By downsizing, you can use the proceeds of selling your home and furniture to cover your expenses or set aside savings for the future.
Social Security benefits, adjusted based on the inflation rate and the standard cost of living, can play a crucial role in supporting your monthly income in retirement. For half of retirees, Social Security benefits form a large part of their income. As inflation increases, retirees receiving Social Security will see their income reflect this change.
Choose investments with inflation protection to reduce inflation’s impact on your retirement savings. Some possibilities include the following:
Treasury inflation-protected securities (TIPS) is a Treasury Bond that adjusts their return based on the inflation rate.
Series I Savings Bonds pay a low, fixed interest rate and a variable rate that adjusts based on the inflation rate.
Other inflation hedges are investments that tend to do well during periods of high inflation, like real estate investment trusts (REITs), precious metals, and commodities.
The best way to preserve your capital is by continuing to earn money. Every dollar you earn in retirement is one dollar you don’t need to withdraw from your retirement savings. Of course, this doesn’t mean you have to keep a 9-to-5 job that you don’t enjoy. Instead, reducing your hours, finding a new job, or creating passive income can give you an extra cushion for retirement.
Determining whether you have enough money to last until your last days is often challenging, and inflation makes it trickier. For example, an inflation rate of 3% per year can cut your retirement savings by more than half over 25 years. To ensure a concrete retirement plan, consult with a financial advisor to understand your future financial needs and how to prepare adequately.
What scares you the most about inflation in retirement? What have you adjusted to try to beat inflation in retirement?