Inflation hasn’t really been a problem for decades in America, but lately it has come roaring back. In addition to the problems it is causing for the economy and the average American household, it’s throwing a wrench into the plans of those who are about to retire.
Invest More Aggressively
Many Americans are under the impression that when they approach retirement, they have to shift their entire portfolios to savings accounts and Treasury bills. This couldn’t be further from the truth. While you do likely want to avoid speculative areas of the market, the truth is that your retirement is likely to last at least 20 years, and perhaps 30 years or more. Over such long time periods, you’ll still need a significant amount of growth in your portfolio to counter inflation and help you meet your long-term goals. Particularly during inflationary periods, you don’t want to get stuck with a portfolio that’s too conservative.
Pick Up a Side Gig
No one wants to work in retirement — after all, isn’t the point of retirement to enjoy a post-work lifestyle? But the truth is that many Americans face a retirement savings shortfall, and that is only exacerbated by high inflation. If you pick up a side gig and work just a few hours per week, that extra income can both counter the effects of high inflation and provide you with an income buffer so that your retirement nest egg can last longer.
Rework Your Budget
Inflation, by its very nature, brings rising prices to a wide variety of goods and services. If you plan to stick with the same budget you’ve had for years during an inflationary period, you’ll likely find yourself coming up short. For example, if you’ve been getting by on spending $500 a month on groceries, you can expect that in 2024 you will spend closer to $540. Rework your budget with realistic numbers that factor in inflation and you’ll see in black and white how much you might have to trim from your discretionary expenses to meet your basic needs.
Get Some Inflation Protection
The first whiff of inflation can often drag down the value of investments. But Treasury Inflation-Protected Securities, or TIPS, are specifically designed to help counter rising inflation. TIPS pay interest twice per year at a fixed rate, like most Treasury bonds. However, unlike other types of bonds, the principal value of TIPS actually rises in line with annual changes in inflation. This not only raises the value of your investment but also increases the amount of interest that you earn, as the fixed rate is applied to the higher principal value. TIPS also carry the backing of the full faith and credit of the U.S. Treasury.
Delay Claiming Social Security
Just as no one wants to work during retirement, few people want to delay claiming Social Security. But in one sense, that’s the best inflation protection that you can get. This is because your Social Security retirement benefit will increase every year that you delay claiming it. For most retirees, waiting to claim at age 70 instead of age 67 can result in a whopping 24% increase in monthly benefits, or 8% for every year that you wait.
Boost Your Emergency Fund
When costs are rising, it’s more important than ever to ensure that your emergency fund is full. Just like the price of day-to-day items like food or gas are increasing, so too are emergency expenses, such as medical bills or car repairs. Without a sizable emergency fund, you run the risk of going into debt for unseen expenses, right as you are headed into retirement. This can lead to disastrous financial results, as you’ll have to draw from your retirement nest egg just to satisfy your debt obligations, reducing your quality of life and potentially putting you in financial jeopardy. With inflation on the rise, do all that you can to beef up your emergency fund so you can avoid these issues.
