Yahoo Finance 5 Tips for Middle-Class Retirees To Deal With Inflation
Inflation can be particularly challenging for retirees, because if you’re not experiencing the wage gains that can coincide with inflation, then you could be left to experience price increases more acutely. For middle-class retirees who don’t necessarily have huge cushions in their retirement portfolios and who are trying to stick to fixed incomes, this effect can be even more pronounced.
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In fact, the number of Americans who are worried about running out of money in retirement has been on the rise — 63% in 2024 vs. 57% in 2022 — and inflation is the most commonly cited concern behind this worry, according to an Allianz Life survey.
Although inflation can be challenging, there are ways for middle-class retirees to deal with it more effectively. Here are some of the top tips from financial experts.
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Tackle Debt
Holding debt — particularly debt that exceeds what you can earn from relatively safe assets like 10-year Treasuries — can complicate retirement in any environment. But when interest rates are high amid high inflation, that can make it even more urgent for middle-class retirees to tackle debt.
“If you are holding cash or cash alternatives, paying off credit cards to lower outgoing dollars is extremely important. Make sure your debt situation is as healthy as possible,” said Jay Sharifi, investment advisor, founder and president of Legacy Wealth Management.
If you don’t have the cash to pay off debt, consider finding ways to restructure.
“Consolidation is key here, as well as looking into transferring credit card balances in order to pay the lowest interest rate possible,” Sharifi said.
With some types of debt, you also could be better off refinancing to a new loan type, such as moving from a variable to a fixed interest rate to reduce the risk of rising rates.
“If someone has any debt with an adjustable rate, this could be a real headache; because, when inflation goes up, so too will the interest rate,” said Chris Maxey, co-founder and an investment advisor for Mosaic Financial Group. “That could be a big problem to carry around in retirement.”
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Put Cash to Work
If you have excess cash that’s not needed for debt yet is sitting around in a bank account earning barely any interest, then that could mean you’re falling behind more than necessary.
“It feels good to have a pile of money in the bank,” Maxey said, “but if it has a poor interest rate and if someone’s money isn’t keeping up with inflation, they may be going broke slowly.
“Higher inflation generally means higher interest rates. Many banks and insurance companies have drastically increased their interest rates. If someone’s bank has not kept up, it might be time to go shopping and find a solution that pays more.”
Review Investments
Your investment portfolio is another key aspect of keeping up with inflation in retirement.
David Johnston, managing partner of Amwell Ridge Wealth Management, suggested compartmentalizing your investments to balance inflationary factors with your income needs.
“While equities have proven to be an excellent inflation hedge, you don’t want the money needed for current income to be invested in stocks,” he said. “Instead, allocate to equities for the longer term, while sticking to guaranteed interest accounts for the short term. Fixed-income vehicles may be best suited for the mid-term.”
This also ties into the power of diversification.
“By spreading investments across different asset classes such as stocks, bonds, real estate and commodities, retirees can reduce the risk of inflation eroding the value of their savings,” said Doug Roller, founder of Crossroads Financial Group.
Adjust Your Budget
As prices increase, sometimes middle-class retirees need to tighten their belts a bit. It can be helpful though to review what makes the most difference to you, rather than following general budget advice.
“Track your own personalized inflation rate,” Johnston suggested. “While published CPI numbers may be frightening, perhaps you’ll notice the things you routinely purchase are less — or more — impacted, and you can adjust accordingly.”
It’s also key to create a plan that you can follow, rather than something that just sounds good on paper.
“Build a budget that you will stick to,” Sharifi said. “A budget that you will stick to is more important than any other budget. Then review weekly to make sure you are staying on track.”
Generate Extra Income
Lastly, you might find that in order to keep up with inflation, you need to increase your income. But you don’t have to go back to work full time.
“Exploring opportunities to generate additional income through part-time work or freelance gigs can help mitigate the effects of inflation on a fixed income,” Roller said.
If you haven’t started collecting Social Security yet, waiting to do so could provide extra income in the future that will pay off in the long run.
“Delaying claiming Social Security benefits can result in higher monthly payments,” Roller said, “which can act as a buffer against rising living costs during retirement.”
Even if you can get by without earning extra income, you might want to consider setting up something now to prepare for the future, like renting out an extra vehicle on a car-sharing platform or setting up a website to offer coaching services to young professionals.
“Start working on future income streams,” Sharifi said. “This step is key regardless of your situation so that you can ensure the next market crisis and/or inflation hike can be handled with ease. Because at some point this will happen again — and when that happens, you will want to be ready.”
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This article originally appeared on GOBankingRates.com: 5 Tips for Middle-Class Retirees To Deal With Inflation
