Social Security and Inflation: 3 Ways To Prepare Aside From Delaying Benefits
If you’ve been planning for retirement and now find that time is rapidly approaching, you may be concerned about inflation. Even if you planned ahead, will you have enough money to live comfortably given the record-high 8.3% inflation rate of the past year?
“This is a daunting time to retire, and higher inflation creates additional uncertainty,” Jason Branning, a certified financial planner with Branning Wealth Management in Ridgeland, Mississippi, said in a MarketWatch article.
Of course, delaying social security until you reach full retirement age, which ranges from 66 to 67 depending on when you were born, can increase your retirement income. If you can wait until age 70 to claim Social Security Income, you can max out your SSI benefits.
You can use a 401(k) bridge and tap into your 401(k) or other investments as early as age 55, as long as you did not retire before 55, according to a prior GOBankingRates article.
But delaying SSI may not be the best solution for everyone. Here are three other ways to prepare for retirement — or even retire now — during a period of high inflation.
1. Reduce Costs as Much as Possible
As with most families today, you may need to look at your budget and trim expenses in places you can so that you can pay for necessities and even the “wants” that are most important to you during retirement. Shop around for lower rates on expenses like car insurance and health insurance. If you are no longer commuting to work, you might be able to reduce your car insurance costs substantially if you don’t drive as much.
Austin Rosenthal, a Wall Street investment manager who retired at age 42, reduced his health insurance costs by shopping through the Affordable Care Act marketplace. He also found less expensive housing for his retirement years.
Consider every line item on your budget – from food to entertainment to your home internet and cell phone bills – and see where you can get the same or similar value for less money.
2. Calculate Your Personal Inflation Rate
When you’re trimming your budget, it can help to consider your “personal inflation” rate. Your personal inflation rate shows how inflation is affecting you and your household based on your regular purchases.
Your personal inflation rate may be lower or higher than the national average shown on the Consumer Price Index. But it’s not the number that matters so much as the information you will discover by calculating your personal inflation rate. You can determine which areas you can cut expenses in order to minimize the effects of inflation on your household during retirement.
3. Tap Into Your Home’s Equity
Some retirees sell their homes and move to more affordable housing, banking the money to live on in retirement or investing it for their later years. If you don’t want to sell your home though, you may have other options to free up cash for retirement.
If you have reached age 62 and your home is paid off, you might consider a reverse mortgage, which allows you to tap into your home equity and receive monthly payments.
If you aren’t old enough for a reverse mortgage, you can take out a home equity loan or open a home equity line of credit. A home equity loan sometimes called a “second mortgage,” will provide you with a lump sum of cash based on the value of your home. You may want to speak with your tax accountant before making this move, as there could be tax ramifications unless you put the money back into your house in the form of home improvements. A HELOC, on the other hand, lets you borrow against your home’s value as needed. You can pay the money back as interest-only payments for a time, and any balance you borrowed will be due in 10 to 20 years, depending on the terms of your loan.
6 Key Steps You Can Take Today to Retire a Millionaire
Looking to retire comfortably? Take these steps now.
It is possible to retire right now or to modify your retirement plans with rising costs in mind. Tap into all the tools and resources at your disposal to ensure you have the money you need to live, now and in the future.
More From GOBankingRates