Essential Tips for Coping with Inflation as a Retiree
Retirement is a time many of us look forward to because it means finally having the freedom to do the things we’ve always wanted to do. However, this “freedom” from the working world can also mean facing financial challenges, particularly during times of inflation. As the cost of living increases, retirees on fixed incomes may struggle to cover rising expenses, and those with more income at their disposal may feel they need to reevaluate their retirement lifestyle spending for fear of outliving their savings. Fortunately, there are steps you can take to cope with inflation and continue to enjoy a comfortable retirement, and we’re sharing seven of these retiree inflation tips below.
#1. Create a Budget
One of the first things retirees can do to cope with inflation is to create a budget. This may seem like a simple step, but it’s crucial for you to have a clear understanding of your expenses and income if you want to be sure that you’re living within your means. That’s why creating a budget is one of the foundational retiree inflation tips. You can track your spending and identify areas where you may be able to cut back. This can help you stay on track with your financial plan so that you don’t end up outliving your retirement savings.
#2. Be Smart with Your Investments
Another way retirees can cope with inflation is to invest in assets that have a good track record of keeping up with inflation. Stocks, for example, have historically outperformed inflation over the long term. However, stocks are also riskier than other investments, so you’ll want to be sure you’re not risking more than your finances can handle. Otherwise, you may set yourself back. You can also invest in Real Estate Investment Trusts (REITs), which are investment vehicles that own and manage income-generating real estate properties. They are publicly traded companies that pool capital from multiple investors to purchase and manage a diversified portfolio of real estate assets, such as office buildings, apartment complexes, hotels, shopping centers, and other types of commercial properties. REITs were created by the U.S. Congress in 1960 to provide individual investors with an opportunity to invest in real estate without directly owning properties.
REITs are a type of “alternative investment” but not the only one. Alternative investments are investment assets that do not fall into traditional categories such as stocks, bonds, or cash. They are considered alternative because they often have unique characteristics, structures, and risks that differentiate them from traditional investments. Alternative investments can include a wide range of asset classes, such as hedge funds, private equity, venture capital, real estate (including REITs), commodities, collectibles, art, wine, and more. These investments are often seen as an alternative to traditional investments and may offer potential benefits such as diversification, potential for higher returns, and a hedge against inflation.
Alternative investments often require more sophisticated knowledge. Keep in mind that a financial advisor can help you build an investment portfolio to serve your needs.
SEE ALSO: Viewing Inflation Through Two Important Lenses
#3. Get Strategic with Your Retirement Savings Accounts
Another of the most helpful retiree inflation tips is to take the time to build out a strategy for how you’ll withdraw your savings. Having a long-term strategy for utilizing your accounts can do wonders for helping you fight off the impact of inflation – especially when you consider how taxes will play into your withdrawals. For example, if you have a traditional IRA or 401(k), you can withdraw money strategically to minimize your tax liability. By withdrawing money in a way that keeps you in a lower tax bracket, you’ll be able to preserve more of your retirement savings.
You can also consider converting your traditional retirement accounts to Roth accounts. Roth accounts are funded with after-tax dollars, which means that you won’t have to pay taxes on withdrawals in retirement. This can be a smart move if you expect your tax rate to be higher in the future than it is now.
#4. Consider Downsizing
This is one of those retiree inflation tips that may be less well received, especially by retirees who are hoping to age in place. However, housing is typically one of the biggest expenses in retirement, so moving to a smaller home or a less expensive zip code may significantly reduce your cost of living. You can also consider renting rather than owning, which can eliminate the costs of home maintenance and repairs. Renting can also provide flexibility, allowing you the freedom to move to a different location if your circumstances change.
#5. Get Involved in Your Community
Some retiree inflation tips don’t seem tied to finance on their face, and this is one of them! However, getting involved in your community can be a helpful way to cope with the stress of an inflationary period. Social isolation can magnify stress and anxiety, whether caused by financial concerns or other areas of life. Isolation can even lead to depression and other health problems, which can be costly to treat. By staying active and engaged, you’re helping yourself maintain good mental and physical health, which can help you avoid expensive medical bills – and feel better, too. Think about joining local clubs or organizations, volunteering, or taking a class to learn a new skill. Not only do activities such as these help to keep you mentally and emotionally healthy, but they can also provide a sense of purpose and fulfillment in retirement.
#6. Practice Smart Money Habits
Whether we’re experiencing an inflationary period or not, it pays to practice smart money habits. This applies to earning, saving, and spending. For example, if you want to shore up your savings a bit more to gain peace of mind, you could consider working part-time or starting a small business to supplement your retirement income. Many retirees find that having a part-time job or a side hustle not only provides extra income but also keeps them mentally and socially engaged.
You can also consider cutting back on non-essential expenses, such as eating out or buying expensive clothes. By prioritizing your spending, you’ll be able to focus on what’s most important to you and save money in the process. You can also consider using coupons or shopping at discount stores to save money on groceries and other necessities.
SEE ALSO: Are You Making Costly Retirement Planning Assumptions?
#7. Remain Hands-on with Your Finances
Many people assume that all the planning and strategizing happens before retirement, and then they can coast through their golden years. While it’s true that there is serious value in planning ahead of retirement, you shouldn’t just step back and rely on autopilot once you stop working. It’s important that you stay involved in your finances. Inflation and other economic factors can be unpredictable, which is why one of the most critical of retiree inflation tips is to be prepared to adjust your retirement plans as needed. This may mean working longer than expected, cutting back on expenses, or exploring new investment opportunities. Whatever the case may be, you’ll want to be sure that you’re being proactive and regularly reviewing your retirement plans and investment strategy to be sure you’re making the best money decisions for your situation.
Incorporating These Retiree Inflation Tips into Your Retirement Plans
Inflation can be a significant challenge for retirees, but it’s not insurmountable. By making thoughtful and deliberate money moves such as the ones above, retirees can cope with inflation and enjoy a comfortable retirement. It’s never too early or too late to develop smart money habits and get intentional about your finances, so you should consult with a financial advisor and take action now if you’d like assistance implementing any of the retiree inflation tips mentioned above.
If you’re looking for assistance in securing your retirement against the impact of inflation, please contact us today. Our team of experienced professionals can help you create a retirement plan that takes into account inflation and other economic factors, and help you choose investments that can help your portfolio keep up with rising costs. With a focus on personalized service and a commitment to helping clients achieve their financial objectives, we’re here to help you navigate the challenges of retirement planning so you can enjoy a secure and fulfilling retirement. We look forward to hearing from you!