Simply hoping for the best is not enough.
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You may think that a stock market crash is your biggest risk in retirement. But even if the market is doing pretty well, there’s another financial risk you need to be aware of: inflation.
Over time, daily living costs can increase. And if you’re not prepared for inflation, you could be at risk of reducing your retirement income and depleting your savings.
That’s why it’s important to have a real plan to beat inflation. In your case it would be:
It starts with the right investment structure
Are you thinking of releasing stocks in your portfolio to reduce risk? You might think that’s the safest bet. But while doing so can minimize portfolio losses, it can also increase the risk that your savings will keep up with inflation and eventually become depleted.
Are there better bets? Continue investing in stocks sparingly.
If you’re really risk-averse and need to limit the stock portion of your portfolio to 25% or 30% for a night’s sleep, that’s fine. However, aim to keep a significant amount of money in the stock market so you can continue to grow.
Expand your sources of income protected from inflation
Money invested for retirement doesn’t necessarily last. But there may be certain sources of income, such as Social Security or pensions, that are guaranteed not to run out.
Increasing these sources of income may provide further protection from rising costs.
Social Security increases your benefits by 8% if you delay claiming past full retirement age. You can get that boost until you’re 70 years old.
If you receive an inflation-protected pension, you may be able to increase it by working longer. Whether or not this is an option depends on the type of pension, but it’s worth considering.
Consider part-time work
Even with solid investments and large Social Security and pension checks, you can be left behind when you run into a period of rampant inflation like the one we’ve seen since the COVID-19 pandemic. In such a situation, one of the best things you can do to increase your income is to take up part-time work or gig work.
Having some extra money coming in will ease your financial stress and might give you something to do with it. That’s a double win.
You can’t expect to avoid inflation in retirement. You also shouldn’t just sit back and hope it doesn’t get any worse. Rather, it’s important to plan in a way that doesn’t put your finances at risk.
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