Be careful, but don’t be afraid.
Lower employment numbers and higher inflation worsen economists’ view
A negative employment report for February amid the escalating conflict with Iran has added to the already worrying outlook for the US economy.
These days, say the word “inflation” in a crowded room and you tend to get mixed reactions. Unfortunately, the reality is that stubborn inflation has been hurting consumers for years. But while inflation can be a problem across the board, it tends to hit retirees particularly hard.
Even with no income, inflation is more than just a nuisance. In fact, it can cause significant financial stress.
The good news is that there are steps you can take to protect yourself from inflation even in retirement. Here are some strategies to consider.
1. Delay in social security
Social Security is designed to keep up with inflation. Each year, your benefits are subject to a cost of living adjustment (COLA).
Unfortunately, these COLAs tend to fail because they are based on broad-based inflation rather than senior-specific inflation. However, if you delay claiming Social Security beyond your full retirement age, your check could increase by 8% for each time you wait until age 70.
Starting with a larger guaranteed benefit will put much less pressure on your portfolio. Also, if you start with a larger baseline, each COLA you get should be worth more.
2. Don’t be too conservative with your investments
Once you retire, it’s natural to want to de-risk your portfolio. But if you invest too conservatively, your portfolio may not be able to keep up with inflation.
As a retiree, it’s generally not the best idea to have more than 90% of your assets in stocks, but it might be a good idea to have, say, 60% or 50% of your portfolio in the stock market. That way, you won’t be completely exposed to volatility, but a significant portion of your assets could be set up to generate strong returns that help you maintain your purchasing power.
3. Be flexible with your spending and withdrawal strategies
Many people decide to withdraw the same amount from their savings regardless of market performance. Sticking to that approach could mean locking in big losses when the market goes down. This not only risks running out of funds, but may also make it difficult to keep up with rising costs in the long run.
Do you have any better ideas? Be flexible with your spending to reduce the amount you withdraw from your portfolio when asset values decline.
Also, be proactive in adjusting your spending during periods of particularly high inflation. Prioritize necessities and limit discretionary spending until the situation calms down.
Inflation is something all retirees need to be aware of. But that doesn’t mean you should fear it or ruin your senior years. With the right strategy, you can beat inflation and enjoy your retirement to the fullest.
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