Tips for Retirees Dealing with Rising InflationJune 20, 2022
Retirees…are you concerned about rising inflation? You are not alone. Individuals are spending hundreds of dollars more per month on food, gas, and more. How can you make sure you are making the most of your retirement income? We have some ideas here.
Why is inflation rising?
The rise in inflation is being largely driven by lingering impacts of the COVID-19 pandemic and the war in Ukraine. Food and energy prices have hit record highs due to extraordinary demand and experts say it could last for the next few years.
How can retirees make the most of their retirement income?
- Hold off on collecting social security- Delay claiming social security as long as possible. Those who can wait to claim social security will receive a greater Social Security benefit –there is an 8% increase per year (after age 62) for each year you delay taking Social Security. However, you must start claiming social security once you turn 70.
- Update your budget- Budgeting is more than living within your means, it involves preparing for whatever life brings your way, which can be difficult when prices are at an all-time high. It is wise to outline what you are spending and evaluate where you may need to cut back. You can consider increasing your withdrawal rate from your IRA or 401(k) temporarily if you have a good portion saved…but do not go overboard! Also, if you have home equity to borrow against, you can take out a home equity loan or line of credit until living costs become more manageable. Be careful not to rely on debt to fund your living expenses. Some retirees also rent out a portion of their homes for another source of income. If you are able to work, a part-time job may also help ease the cash crunch.
- Make sure your portfolio is balanced- A fully diversified investment portfolio will help you through these difficult times. It is always wish to have some cash outside of your investment accounts to help you pay your bills during these inflationary times. With interest rates rising, these monies can be put into money market or savings accounts to earn some interest and to partially offset the loss of purchasing power due to inflation.
- Work on paying off debts-
While this may be last on your list when you are dealing with hefty expenses, it’s wise to work on paying off existing debts. Paying down debt like credit cards and personal loans should be your second priority (after living expense costs). Start with the debt with the highest interest rates and work your way down to the debt with the lowest interest rates. You should also be cognizant of what debt has tax-deductible interest and which does not as you should consider the after-tax cost of the debt when deciding which to pay down first.
Save when you can- It is always a good practice to save money on the sidelines as a “rainy day” fund. Questions on managing your finances during these times? We can help.