Inflation is at a 40-year high, and while we could be seeing signs that it may be starting to ease, our pocketbooks are still feeling the pressure. Families are cutting back on everything from groceries and shampoo to dining out and travel. For those nearing retirement, inflation could be impacting when they retire and what retirement looks like.
While many are worried about the state of their finances in the midst of high inflation, there are strategic ways to navigate all the uncertainty to ensure you retire the way you want.
1. Be Strategic When Spending.
When getting ready to go shopping, especially for groceries, always have a list. Don’t show up to the grocery store without knowing exactly what you need to buy. We have all gone shopping while hungry and know how much overspending that can lead to. Not knowing exactly what you need is just as much of a problem as hungry-shopping is for your wallet, especially with grocery prices on the rise.
The price of food has gone up 10.4% from December 2021, making a plan even more necessary. If you don’t already have a budget, consider making one. This can help you strategically plan out exactly what you will be spending your money on before you head to the store.
You can also try looking for sales on a few of your staple items and stock up on them. This way you are buying fewer items every week. If possible, delay purchases that aren’t necessary. You may want extra items while shopping, but are they essential? Waiting a few weeks gives you time to look for coupons or deals associated with those extra items, saving you money.
Delaying a purchase can also help you understand the difference between a want and a need. You can then put that money toward something that is essential.
2. Be Strategic With Social Security Benefits.
Social Security is one of your income sources that will go up over time due to cost-of-living increases. The cost-of-living adjustment, or COLA, for 2023 is 8.7%. This is the biggest boost since 1982.
When it comes to Social Security, there are many strategies you need to be aware of for taking benefits. The earliest you can take Social Security benefits is 62 years old. But waiting until you are older is the best way to increase those benefits. For people born in 1960 or later, the full retirement age, when you can collect 100% of your benefits, is 67. Claiming benefits before full retirement age results in a permanent reduction of as much as 30% of your benefit.
If you wait until after 67 to claim your benefits, they will grow 8% each year you wait until age 70. If you aren’t able to wait until full retirement age, you can try to work longer to increase your Social Security benefits.
3. Be Strategic With Your Credit Card Debt.
During periods of high inflation, don’t rely too much on credit cards. The average American has more than four credit cards, and the United States just hit an all-time high of $930 billion in credit card debt.
Depending on your credit score and how responsibly you use your cards, I recommend having no more than three to five credit cards. Anything more than that can be hard to keep track of and makes it easier for you to dig yourself into a hole. If you are making only the minimum payment, it could take months or years to pay off your debt and get yourself out of that hole.
When tackling your debt, there are two popular methods: the avalanche method and the snowball method. With the avalanche method, you are encouraged to tackle the debt with the highest interest rate first. This helps remove debt that is costing you the most money. This is a great method for those with high-interest debt, like credit cards.
The snowball method encourages you to pay off the debt with the smallest balance first. Once that first debt is paid, you take the money you were putting towards it and start paying off the next-smallest debt. Like a snowball rolling down a hill, this method helps you build momentum until all debts are paid. No matter which method you choose, continue making payments on your other debts as you work to pay them all off. Another strategy for dealing with debt is debt consolidation. This is where you roll all of your debt into one payment. Having just one monthly payment for all of your debt can help you get a lower interest rate and pay off those debts faster.
Now more than ever, it’s important to plan ahead for your golden years. Regardless of how close you are to retirement, being prepared for unforeseen circumstances like inflation will help you live the retirement you have always wanted.
A financial professional can help you create a comprehensive plan for retirement to meet your specific goals and needs.
Tony Drake is a CERTIFIED FINANCIAL PLANNER™and the founder and CEO of Drake & Associates in Waukesha, Wis. Tony is an Investment Adviser Representative and has helped clients prepare for retirement for more than a decade. He hosts The Retirement Ready Radio Show on WTMJ Radio each week and is featured regularly on TV stations in Milwaukee. Tony is passionate about building strong relationships with his clients so he can help them build a strong plan for their retirement.
How To Use Sector Rotation In Investing
Anticipating turns in the economy through sector rotation can pay off for nimble investors.
By Nellie S. Huang Published
A Disability Doesn’t Have to Force an Early Retirement
A feature on what people who experience disabilities later in life can do about work.
By Alina Tugend Published
Four Reasons to Rent When You Downsize for Retirement
Renting is great when you want to test-drive a location, or you want more predictable costs. It might be easier for family relationships in the long run, too.
By Evan T. Beach, CFP®, AWMA® Published
Give Your Charitable Giving a Boost With These Strategies
Donating to charity is easy. Getting the most from your donation and paying less in taxes can be more complicated.
By Jared Elson, Investment Adviser Published
A Plateful of Financial Topics That Might Come up Over Turkey Dinner
From higher prices and mortgage rates to AI planning our retirements: These are some of the conversations you might have as multiple generations gather for the holiday.
By Jerry Golden, Investment Adviser Representative Published
Four Holiday Shopping Strategies to Keep You in Check
Overspending during the holidays is so easy, but if you go into the shopping season with a plan and a budget, you’ll be so much happier in 2024.
By Tony Drake, CFP®, Investment Advisor Representative Published
Four Tips for Discussing Your Estate Plans at the Holidays
Family gatherings are the perfect time to talk with family members about representing you in your estate plan and to let them know what the expectations would be.
By Allison L. Lee, Esq. Published
What to Do if Your Employer Stops Its 401(k) Match
If other companies follow in IBM’s footsteps, employees will need to make some adjustments in their retirement savings.
By Mike Palmer, CFP Published
How Do Non-Compete Clauses Work? Are They on the Way Out?
Even low-skilled workers are subjected to non-compete clauses, but that could change as lawmakers take them on for restricting mobility and keeping wages low.
By H. Dennis Beaver, Esq. Published
What Is the F Reorganization, and Why Is It So Popular?
This year has seen an uptick in F reorganizations. Let’s explore the advantages and disadvantages for buyers and sellers.
By John M. Goralka Published