12 Ways to Manage Inflation in Retirement

Inflation raises your living expenses. You already know that -- you've seen your grocery and utility bills tick up in recent months. In retirement, those higher living expenses can upset your entire financial plan. If your response is to increase your retirement withdrawals, for example, you'll deplete your savings faster than expected.

Fortunately, there are other steps you can take. Try these 12 inflation management strategies, aimed at controlling expenses and keeping your long-term wealth intact.

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Budgeting is one of your best defenses against inflation. While inflation forces you to spend more, budgeting empowers you to spend less.

A budget sets your spending parameters, but it also reveals your main savings opportunities and obstacles. You'll see more opportunities if you have a lot of discretionary expenses. You'll see mostly obstacles if you have high essential costs like a mortgage payment and utilities. Unfortunately, pricey essentials are tough to address without downsizing or relocating.

Still, it's better to understand those obstacles now -- while you have time to address them.

ALSO READ: Should You Rethink Your Budget in 2022?

Inflation reduces the purchasing power of your savings, which can ultimately cause you to run out of money. You could combat that in part by reducing your retirement account withdrawals to the bare minimum.

Use your budget to trim back your regular spending. You may also want to postpone larger expenses temporarily, like home remodeling projects or fancy vacations.

Many premium dividend stocks raise their payouts annually. Those rising dividend payments can absorb some of your unavoidable, inflation-related spending increases.

This strategy only makes sense if dividend stocks are appropriate for your risk tolerance. They are riskier than bond funds and cash; the value of dividend stocks can fluctuate, and the dividend payments are never guaranteed.

ALSO READ: 4 of the Safest Dividend Stocks Retirees Can Confidently Buy Right Now

Debt squeezes your budget even in noninflationary times. The ongoing interest charges continually raise the cost of items you've already purchased. The effect is more extreme when inflation is hot because variable interest rates will rise.

Get serious about paying down your debt. Doing so will free up space in your retirement budget and halt the ongoing interest charges.

Working in retirement is a go-to strategy for many underfunded seniors. The ongoing paycheck will allow you to take smaller retirement withdrawals. You may also be able to postpone your enrollment in Social Security, which will raise your benefit later.

There are drawbacks to staying in the workforce, however. You risk missing out on the fun retirement experience, especially if your health declines while you're still working.

Consider whether you can balance your financial needs with your lifestyle needs -- possibly with a part-time job you truly enjoy versus staying in your full-time career.

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If you haven't already claimed Social Security, you can postpone your benefits. The longer you wait to start collecting, the higher your Social Security income will be. And the higher your starting benefit is, the more value you'll get from inflation-based cost-of-living adjustments going forward.

If you are receiving Social Security now, you may have the option to suspend your benefits temporarily. You'll earn delayed retirement credits for each month your benefit is paused, which means higher income when you do start collecting.

If you have cash on hand, it may make sense to use it. Paying some of your living expenses from cash allows you to keep more of your savings invested. Staying invested is generally better for your long-term solvency versus liquidating shares when the market is down.

This is a temporary strategy only. You might use cash for a short time while you work out your budget or downsize your living expenses, for example.

ALSO READ: Why Retirees May Want Several Years of Living Expenses in the Bank

Your largest expense in retirement could be out-of-pocket healthcare costs -- which are subject to their own inflation rates. Historically, healthcare inflation has run higher than general inflation.

Living a healthy lifestyle is a longer-term strategy to manage the healthcare line item on your budget. Eat right and stay active, if not because you love veggies and exercise, then because you love your money.

You may be able to slash your living expenses by relocating. According to the BestPlaces.net cost-of-living calculator, moving from Los Angeles to Charlotte, N.C., could lower your cost of living by 43%. That's more than enough to counteract this year's high inflation trend.

Moving, of course, is a major life decision that can affect your budget in other ways. Think through how you'll spend your time in the new locale. If you can't stay busy, you may end up spending more on travel than what you saved by moving.

ALSO READ: Is Relocating in Retirement the Right Choice for You?

Downsizing your home or your cars is another aggressive inflation strategy. If you own your home outright, you could generate cash by moving to a smaller property. Investing some of that cash in fixed-income funds or dividend funds adds another source of income that'll help you manage inflation going forward.

If you're still paying off the mortgage, downsizing could be one way to lower your essential spending dramatically.

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A lower tax bill this year could help offset inflation-related increases to your living expenses. If you have taxable and tax-free income sources, consider whether you should lean more heavily on your tax-free distributions temporarily.

You can lower your overall tax bill this way. Plus, the change might also lower the taxability of your Social Security income -- which is partially dependent on your taxable income outside of your benefit.

Sometimes the least obtrusive financial move you can make in the short term is a life insurance loan. The loan will lower your death benefit. The good news is, you generally don't have to make interest or principal repayments -- at least at first.

Longer term, you may want to repay the balance. The interest accrues over time. Unchecked, those interest charges will chip away at the health of your policy. Your premiums may rise later as a result.

ALSO READ: How Can I Get a Life Insurance Loan?

Inflation is bad for everyone, but you might feel the worst of it as a retiree. You can fight back with a few smaller strategies, like streamlining your budget and shifting to a higher percentage of tax-free income. Or you can take big steps, such as relocating or downsizing.

Whatever path you take, make it your own. Choose where you'll compromise, rather than having the economy choose for you.

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