Retirement is often framed as a time to kick back, relax, and enjoy the freedom of not having to report to a job. But there's one thing that doesn't retire just because you do -- inflation.
At first, inflation may not seem like a major threat, since it's something a lot of people are used to by the time they retire. The problem is that over time, even modest inflation could quietly eat away at your buying power. That could put your savings at risk of running out.
Image source: Getty Images.
The risk, of course, is compounded by longevity. You may have a 20-, 25-, or 30-year retirement ahead of you. Over that long a timeframe, inflation could become a major problem by driving costs up.
And unlike a volatile stock market, which can be a temporary setback in retirement, inflation can be both persistent and cumulative. Once prices rise, they rarely fall in a meaningful way. Anyone who's been paying attention to post-2020 price increases knows that very well.
That's why it's so important to be mindful of inflation when planning for retirement -- and take steps to ensure that it doesn't upend your finances.
How to fight inflation in retirement
Inflation may be a perpetual threat, but that doesn't mean it has to wreck your senior years. There are steps you can take to beat inflation and maintain your buying power over time.
First, don't ditch stocks in retirement. It may feel safer to shift fully into cash and bonds. But you need stocks to outpace inflation.
A balanced, diversified portfolio could allow you to hang onto your buying power without taking on undue risk. That could mean keeping 40%, 50%, or 60% of your assets in stocks, depending on your comfort zone.
Another smart thing to do? Consider delaying your Social Security claim.
Social Security benefits have built-in inflation protection. That's because they're eligible for an automatic cost-of-living adjustment each year.
Delaying your claim, meanwhile, means locking in larger monthly checks. The more generous your benefits are to begin with, the more meaningful each annual raise is bound to be.
Be vigilant, but don't be scared
It's natural to worry about the impact of inflation on your senior years. But rather than let it become a source of ongoing stress, take steps to fight it.
The right portfolio and Social Security strategy could set you up to manage inflation well for decades. That could, in turn, spell the difference between struggling financially and preserving your savings for the long haul.
