In a list of the biggest risks to your retirement, inflation would be near the top, and it's something we have no control over.

However, there are some things you can do to prepare and protect your retirement from inflation, and that's what we're covering in this video.

The Problem With Inflation In Retirement

Inflation itself is not a surprise. We know that in the future, things are going to cost more than they do today.

Which means that your essential expenses will be higher in the later years of your retirement compared to when you first retire.

So in order to maintain your standard of living, your income will need to go up as well.

Now we can account for that inflation in a retirement plan by just making sure that you have enough saved that we can increase your income each year in retirement. But what if inflation turns out to be higher than expected?

I'm going to go over five things you can do to plan for that risk.

1. Delay Claiming Social Security

First, and by far the most impactful thing you can do to protect your retirement from inflation is to delay claiming Social Security. Waiting until you turn 70 will get you the highest benefit. But every month you can hold off will permanently increase your monthly benefit.

This is super helpful for fighting inflation because your social security benefit adjusts each year for inflation. So that income is essentially insulated from inflation risk. Not only that, but social security is guaranteed for the rest of your life.

So while your investments could run out, especially if you live beyond your life expectancy, Social Security is going to continue paying.

So by delaying social security, you'll be better protected from a longer than expected life. Plus you'll have more income that's protected from inflation.

2. Invest In The Stock Market

In my opinion, the best asset for long-term inflation protection in your portfolio is stocks.

The reason is straightforward. When prices rise, companies eventually pass those higher prices on to their customers. So over the long term, the earnings of those companies continue to grow on top of inflation.

It's important to remember that stocks act as a long term inflation hedge, but over the short-term, stocks are volatile and inflation can actually cause the market to fall along with the economy.

So while I think stocks are a vital part of a retirement portfolio, it's important to keep that long-term perspective, be willing to sit through the down markets, and maintain a well diversified portfolio.

 3. Inflation Protected Bonds

This is the simplest and most straightforward way to get inflation protection in your portfolio.

Inflation protected bonds are issued by the U.S. government and are also known as TIPS.

You have your principal, which is the amount you paid for the bonds, and the yield or interest rate.

And your principal gets adjusted with inflation. So if your principal was $100 and next year inflation was 2%, then your principal is going to get increased by 2% to $102.

TIPS also pay interest every six months, not on the original principal, but on the adjusted amount. So, if your principal goes up with inflation, so does the interest you get.

4. Maintain Some Breathing Room Beyond Essential Spending In Your Budget

I call this your discretionary spending or fun money. This part of your budget gives you the flexibility to adjust your spending if needed.

So if certain costs spike due to inflation like gas, food, travel, then you can lower your spending in those areas and prioritize the essential expenses.

To give yourself this breathing room, you may need to retire a little bit later than you otherwise could have, but I think the added peace of mind will be worth it.

5. Own Real Estate

Housing is an area where inflation can be especially painful.

For many of us, housing expenses are the biggest expense in our budget. So, any increase there is definitely going to be felt. Owning real estate, though, can help lessen that blow.

That could mean simply owning the home you live in so your monthly mortgage payment is fixed or it's eliminated completely if your house is paid off.

Not only that, but you have an appreciating asset that has historically kept up with inflation.

But even if you rent, you can still own real estate in your portfolio. There are tons of mutual funds and ETFs that invest exclusively in real estate. So that's an easy way to tap into that market without directly owning property.

While inflation is a reality that everybody's going to fate. Utilizing these strategies proactively can help you reduce its effects.

As always, it's important to consult with a financial professional before making any changes to your financial plan. At Trek Wealth Planning we help our clients create a retirement plan that integrates strategies like the ones discussed in this video with the ultimate goal of providing more peace of mind and a comfortable and fulfilling retirement. I’d encourage you to schedule a free consultation to learn more.