You are not doomed to lose purchasing power.
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These days, people seem to talk about inflation the same way they talk about the weather. Just as many of my East Coast residents are tired of this depressingly snowy winter, we’re also tired of inflation increasing our bills.
The tricky part is that if you look at the latest Consumer Price Index readings, you’ll see that inflation rose only 2.7% annually in December, which isn’t an outrageous increase. The problem is that after a few years, very When inflation is high, even an increase of just 2.7% has a cumulative effect, making costs too high for comfort.
It’s natural to worry that inflation will ruin your retirement. However, there are steps you can take to protect yourself. Here are two strategies retirees can use to combat inflation.
1. Invest in the right assets
The retirement portfolio you’re building now can continue to generate income when you’re ready to start leveraging it. So don’t think you should move all your assets into cash when you quit your job.
Instead, it’s important to come up with a mix of investments that balances risk while ensuring your money continues to grow steadily. That mix could include bonds, dividend stocks, and real estate investment trusts. If your portfolio is providing you with a steady income, you should have more room to cover your expenses in retirement, even if it continues to grow year after year.
2. Delay Social Security benefit payments if the check is large.
When you think about your retirement income, you may think that your monthly Social Security check is a fixed amount. But remember, your Social Security benefits are subject to an annual cost of living adjustment (COLA).
Now, historically, Social Security COLAs haven’t done the best job of keeping up with inflation. But if you delay claiming Social Security past full retirement age, you can increase the amount of your monthly check by 8% each time you do so until you turn 70. Not only will this give you more money each month to start, but you’ll also receive more COLA because you’ll have more benefits to begin with.
It’s natural to worry about the impact of inflation on purchasing power. This is especially true if you are no longer earning a paycheck from your job. But with the right investment and Social Security filing strategies, you can keep up with inflation and minimize future financial stress.
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