Inflation-Proof Your Retirement: Smart Strategies for Savvy Retirees

December 21, 2023
Retirement Planning

Retirement is that phase of life where one is usually free from routine work responsibilities and often has more leisure time. However, this period can also bring financial concerns, especially if inflation is not accounted for.

Inflation erodes the value of the dollar over time, which means that the longer a retiree lives, the greater the need for Inflation-Proof retirement savings. Fortunately, there are several smart strategies that savvy retirees can employ to ensure their retirement is inflation-proof.

Plan Ahead

Retirement planning is an integral part of ensuring a comfortable retirement. Research shows that only one-third of people have calculated how much money they need to save for retirement. While there is no one-size-fits-all calculation for retirement savings, experts recommend an average individual save at least 15% of their pre-tax income. This percentage tends to shift depending on various factors, such as age, earning capacity, and living expenses.

Consider Investing in Treasury Inflation-Protected Securities (TIPS)

TIPS are US government bonds that are designed to protect investors against inflation. The principle of TIPS is adjusted based on the Consumer Price Index (CPI), which is a measure of inflation. As inflation goes up, the principal of TIPS also goes up. This means that you’ll receive a higher yield than regular bonds even if inflation is high. TIPS can be an excellent addition to your retirement portfolio to hedge against inflation.

Invest in Stocks

Investing an adequate percentage of savings in stocks is essential to beat inflation. Stock investments usually outperform bonds over the long term, meaning they are more likely able to keep pace with inflation. Diversification is key when investing in stocks. A diversified portfolio of investments helps protect against market volatility. However, investing in stocks also carries risks, so it is essential to talk to a financial advisor to develop a balanced portfolio.

Consider Social Security Benefits

Social Security benefits are also subject to inflation adjustments. Cost-of-living adjustments (COLA) protect social security payments from losing value to inflation. Retirees should check with Social Security to ensure they are receiving the correct benefits and check for potential changes to the COLA.

Shift to a Lower-Cost-of-Living Area

The cost of living can vary significantly depending on where retirees choose to live. A retiree can move to a lower-cost-of-living area to reduce expenses. Areas such as rural areas and college towns tend to have a lower cost of living, which can save retirees expenses on housing, transportation, and groceries.

Increase Income Sources

Another essential step in inflation-proofing retirement savings is to increase income sources. Retirees may consider part-time work gigs or starting a small business as an additional stream of income. This additional income stream can allow retirees to continue to grow their savings, make ends meet, and maintain their lifestyle without having to worry about inflation.

Remember, taking the right measures and making the right decisions today will set the foundation for a comfortable tomorrow.

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