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How to Manage Inflation During Retirement

inflation

Inflation hasn’t been an issue retirees have had to worry about for a long time. But that doesn’t mean it’s okay to forget about it entirely – if it comes back, retirees need to know how to manage it to make sure their purchasing power isn’t reduced.

Investopedia has some tips for how to manage inflation during retirement:

Consider Investment Alternatives

Likely a portion of your portfolio should remain invested in stocks, which have typically earned returns in excess of inflation over time. While it may be tempting to move away from equities after the market losses of the financial crises, doing so could impact your ability to stay ahead of inflation. Your investments should be diversified among various asset classes based upon your risk tolerance, your income needs, your age, etc.

Other investment ideas touted by financial advisers to counter inflation include Treasury Inflation-Protected Securities (TIPs), commodities, high-yield bonds, real estate (via real estate investment trusts), and selected mutual funds employing alternative strategies. This isn’t to say that these options will be right for you as everyone’s situation is different. (For more, see: Combating Retirement’s Silent Killer: Inflation.)

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Taking Social Security

You will become eligible to begin collecting Social Security benefits at age 62. If you take benefits at that age your monthly payment will be permanently reduced. If you wait until your full retirement age, which is 66 for most people, your monthly benefit will be 33% higher. If you can wait until age 70 to commence benefits, your monthly payment amount will be another 35% higher. The increases are also prorated, so if you were to commence benefits at age 64 your benefit would be higher than at age 62. Additionally, waiting longer will also increase the amount of cost-of-living increases, as these are based upon your benefit level as well. (For more, see: Will You Have to Delay Your Retirement?)

Manage Fixed Expenses

Try to enter retirement with as little debt as possible. If you aren’t using a significant portion of your income to pay a mortgage, car payment, or credit card debts, you’ll have more flexibility to deal with higher prices for other items you need to purchase. (For more, see: Inflation-Protected Annuities: Part of a Solid Financial Plan.)

Decide How to Deal with Health-care Costs

While Medicare will help once you turn age 65, it still does not cover many health-care costs. The cost of healthcare in retirement is often cited as an item that becomes an increasingly significant budget item for many retirees. In recent years healthcare costs have increased at a rate in excess of the rate of inflation. Look into supplemental policies and prescription coverage to help with those non-covered expenditures, especially if your employer does not provide health insurance after retirement. (For more, see: Tips on How to Beat Inflation for Older Savers.)

Read the full list of tips, seven total, here.

 

Photo by  Backdoor Survival via Flickr CC License

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