So many retirees budget for their ideal retirement but don’t always consider one piece of the puzzle that could easily derail a solid plan with the impact of inflation. As of January 2022, inflation hit a 40-year high as the Consumer Price Index increased to 7.5%, and everyone is feeling it when they go to the grocery store or fill up at the gas stations.
If you are nearing or are in retirement, there are some strategies you can use now to navigate high inflation and make sure your plan is secure.
Don’t Increase Your Risk with Your Savings
Risk management is a big part of dealing with high inflation, especially now, but the closer you are to retirement, the less risky moves you want to make in the market.
For example, if you meet with a financial professional to discuss ways to protect your retirement from inflation, and they suggest making drastic changes to your portfolio to give you a better chance of a higher rate of returns, that’s a big red flag. The only way to increase your chances of a higher return is to take on more risk of investment loss. If the market turns on you, this could leave you with a lot less in your nest egg to work with while you deal with higher prices due to inflation, and it could affect your ideal retirement.
Beef Up Your Social Security Benefits
Social Security benefits are one of your income sources that goes up automatically over time because of cost-of-living increases. In 2022, the Social Security cost-of-living adjustment increased to 5.9%, the largest boost since 1982.
One way to boost your Social Security benefits is delaying when you start taking them. You have the option to take Social Security at age 62 or wait until your full retirement age, which is usually either 66 or 67, depending on when you were born. You could even wait until age 70 to start. Putting off the date you start to collect will help your benefits grow by as much as 8% a year from your full retirement age up until age 70.
But if you can’t wait to claim your benefits, this isn’t the only way to beef up Social Security. Earning more, minimizing Social Security taxes and working for longer are just a few of the other ways to increase your payments.
Diversify and Coordinate Your Income Streams
Retirement requires you to transition from getting paychecks from your company to figuring out your own payment plan. You could be living in retirement for 20 years, 30 years or even longer, and adding inflation to the mix can make this process pretty overwhelming. Your plan will need to factor in retirement income increases over time.
A solid, diverse retirement income strategy can help you feel confident that you won’t run out of money. Make sure your plan utilizes more than just your 401(k) or Roth IRA. Other income streams could be Social Security, any real estate you own an inheritance or any other investments you have.
Regardless of what your ideal retirement looks like, planning in advance to deal with inflation, interest rate hikes and any unexpected changes is key. A financial professional can help you assess all of your options and create a comprehensive retirement plan that meets your goals and needs.
Originally published on Kiplinger.com