Inflation and Retirement

When retirement is on the horizon, changing economic situations may make you hesitant to pull the trigger. One prime example is the high rate of inflation that’s occurring today. Prices in many areas are skyrocketing, dramatically decreasing the purchasing power of many households. Since retirement often means transitioning to a fixed income, it may give you pause, effectively causing you to delay your exit from the workforce. However, whether it should prevent you from retiring may be up for debate. If inflation is holding you back from retiring, here’s what you need to know.

What Rising Inflation Means for Retirees

Currently, prices are rising in nearly every spending category. As a result, the idea of living on a fixed income may be hard to swallow, particularly if the amount you planned on using doesn’t cover your expenses as well as it did in previous years. After all, retirees typically have to plan out their withdrawals from non-pension-based plans to ensure they’ll have enough to last the rest of their life. Since that’s the case, they may not be able to pull more now to accommodate for inflation.

Additionally, when inflation is high, the returns on lower-risk investments tend to decline. For example, many adults shift more of their asset allocation towards bonds as they age, as they’re viewed as safer. The issue is that – aside from Treasury inflation-protected securities – rising inflation causes bond rates to fall dramatically in nearly all cases.

However, inflation also triggers cost-of-living adjustments for Social Security recipients. While the changes generally occur annually, it does mean that how much you’ll receive could rise, though not always to the point of fully covering the inflation-related cost increases.

What to Do If You’re Near Retirement

If you’re close to retirement, you don’t necessarily have to delay simply because inflation is higher. The economic factors leading to higher inflation may not remain in place for long. For example, as supply chain issues resolve, supply ends up more in line with demand, causing prices to level out.

Readjusting your investment allocations could also make a difference. While it means introducing more risk, transitioning to a more growth-oriented strategy may help offset the impact of inflation. As a result, you may be able to withdraw more or ensure your funds can provide you with a comfortable lifestyle for longer.

There’s also the option of maintaining a different income source. For example, you could freelance or work part-time, giving you some income without having to remain in a full-time role.

However, if you’re still uncertain, waiting is always an option. It’s possible that the situation will change in the relative near future. If that’s the case, you may feel more confident about stepping away from the workforce then.

Ultimately, you have to do what’s best for you, so make the choice that gives you the most peace of mind regarding your financial future.

Inflation and retirement, is inflation deterring you from retirement? If so, what are you doing to adjust? If not, why are you moving forward as you originally planned? Share your thoughts in the comments below.

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