10 Ways Retirees Can Be Better Prepared When Inflation Skyrockets

It’s easy to forget to account for inflation when making a retirement plan, that subtle upward climb of the cost of living over time.

While the Federal Reserve Board aims to keep inflation at or around 2%, historically inflation has jumped all over the place. In the midst of the pandemic, it was upwards of 8%, for example. And while inflation has cooled significantly since then, some of those higher prices are here to stay.

However, retirees can be prepared for inflation with some forward thinking and some simple financial strategies.

Chris Boyd, a certified financial planner (CFP) and the senior vice president at Wealth Enhancement Group, explains 10 ways retirees can get ahead of inflation in their retirement planning, especially when it skyrockets.

Boyd explained that retirement planning requires intentionally and strategically investing your assets into different buckets, some which may bring greater risk but also greater rewards, and others that are steady over time. You want to have a mix of tax-advantaged accounts so that you also minimize your tax burden.

Boyd specifically recommended “having investments that are designed with asset classes that are expected to grow equities, perhaps stock or real estate and sometimes selectively, maybe commodities …”

According to him, those are the asset classes that typically make inflation less problematic and help the portfolio outpace inflation (or at least keep up).

Your asset allocation may need to change over time, and you should revisit them regularly. Whether you’re heading into retirement, or already there, will influence how you adjust your portfolio as well.

“There’s no time like the present to review your asset allocation, as markets are either at or near all-time highs,” said Boyd.

“Wherever you either have too much or too little equity exposure, it’s a reasonable time to sort of take a moment to revisit what’s the right mix when it comes to the idea of trying to increase income.”

This often requires the support of a financial advisor if you aren’t well versed in these kinds of accounts yourself.

If you have the opportunity to plan, you might think about delaying taking Social Security to maximize benefits.

“If you have a life expectancy where you expect to make it maybe to 80 or 82, you may end up with a little bit better outcome by pushing those start dates off,” Boyd said.

For some retirees, particularly those who gain a sense of purpose or social satisfaction from work, Boyd suggested maintaining or taking on a part-time job may be a good way to contend with the challenges of inflation.

However, Boyd also said he likes to encourage people to think about being a “total return investor, not just investing for income or for growth.”

This means not chasing income but rather thinking holistically about all the ways that income is coming in, and whether it’s tax efficient, earned in the most beneficial ways and won’t change your tax bracket.

If you’re looking for ways to cut spending, Boyd recommended taking a look at what sort of Medicare plan you’re on.

For example, “People who might’ve had a Medicare supplemental plan might examine use of a Medicare advantage plan to try to reduce some of their costs,” he said, particularly if you’re utilizing a lot of healthcare services.

One of the first things Boyd recommends to people who are already feeling the pinch of inflation is to consider downsizing or relocating their home.

“These can come with benefits of less taxes, maybe lower utility bills and maybe even the opportunity to avoid some of the maintenance that they’ve been putting off on their current home,” he said.

If you’ve got a solid amount of equity in a home, you might be able to cash that out in a sale and buy something cheaper elsewhere. Of course, he recommended people be very thoughtful about the new home being able to accommodate the needs and demands of aging.

Outside of that, Boyd urged retirees to seek out overlooked expenses, particularly those that recur that you might not need or use, such as gym memberships and streaming services.

Those small monthly subscriptions can add up to big numbers if you’re not careful.

Lastly, what may sound counterintuitive, Boyd said, is to ask whether you really need to be paying for life insurance. 

“We tend to think of life insurance as a wealth creation tool, but if you’re finding there’s not enough [income], it may be relevant to reexamine whether you should have life insurance.”

This will depend on whether surviving spouse or other beneficiaries may be counting on that money after you pass, but for some retirees it may just be an unnecessary expense.

Big decisions like retirement planning can be difficult to do on your own. You should consider seeking financial advice from a professional to make the best decisions for your future in the face of skyrocketing inflation.