Here are 3 ways retirees can cope with higher prices as inflation rises

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Because of inflation, Americans are spending hundreds of dollars more every month.

For those in their golden years, this could mean trying to extend an already tight retirement income.

Consumer prices rose 8.5% year over year in March, according to the US Department of Labor. These include groceries, which are up 1% compared to last month and 8.8% year-on-year, and gasoline, which is up 18.3% compared to February and 48% compared to last March .

Accommodation prices have increased by 5% over the past year.

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“The challenge is that we’re dealing with inflation, low interest rates and stock market volatility,” said certified financial planner Marguerita Cheng, CEO of Blue Ocean Global Wealth in Gaithersburg, Maryland.

“These three challenges all collide,” she added.

On the other hand, there are areas where retirees may not be as affected as the general population. As personal spending changes in retirement, the impact of some rising costs will be reduced, according to JP Morgan’s 2022 Guide to Retirement.

“[Retirees] have more flexibility in the sense that if fuel prices rise or airfares rise, they can decide not to go on vacation this year,” said CFP Michael Finke, professor of wealth management at the American College of Financial Services.

“Business travelers don’t have the same flexibility,” he added.

Social security is also adjusted for inflation. Over the next year, seniors could receive up to an 8.9% cost-of-living adjustment, according to a latest estimate from the Senior Citizens League, a nonpartisan senior citizens’ group. The January 2022 increase was 5.9%, the highest in 40 years.

With that in mind, here’s how retirees can deal with inflation.

1. Wait until you collect Social Security

The best thing seniors can do to protect their income from inflation is to delay filing for Social Security, which will essentially buy more Social Security income, Finke said.

After you reach full retirement age, you can increase your benefits by 8% for each year you wait until age 70, up until age 70.

“If they wait until age 68 or 69, that’s a huge improvement in the amount of inflation-linked income they can get,” Finke said.

2. Check your budget

Factor the price hike into your budget, advises Cheng, a member of the CNBC Financial Advisor Council. This way you can see what you are actually spending and where you might need to save.

For example, putting off vacations or cutting back on unnecessary car trips can help reduce gas costs.

When it comes to grocery shopping, it may mean buying less red meat and more chicken, or going to a farmer’s market instead of going to the grocery store. You can also save money with coupons and price comparisons.

3. Balance your portfolio

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Having a mix of cash, stocks, bonds and other assets is key, Cheng said.

Cash on hand will actually help you stay invested so you don’t have to give up a fortune when you need money, she explained. However, cash is a losing bet against inflation because the purchasing power of that money decreases as inflation rises.

To focus on longevity so you can maintain your financial independence in retirement, consider dividend stocks, growth stocks and real estate, Cheng said.

“These are assets that will fluctuate in the short term, but they are designed for the longer term to provide retirees with diversification and protection from inflationary risks,” she said.

When it comes to dividends, focus on growing-yield stocks rather than high-dividend stocks, advises Cheng. Those with large payouts may need to trim them later, while those with growing dividends have a history of steady increases. Look for a fund that has a basket of well-known names.

Also have a mix of different ties. Although they’re considered a “safe” asset compared to stocks, they also come with risks because if interest rates rise, a bond’s price can fall, Cheng explained. The Federal Reserve, which raised interest rates last month, expects six more rate hikes this year.

Retirees may also consider inflation-linked government bonds, which, like typical government bonds, are issued and backed by the US government. However, they are equipped with inflation protection. Again, there are exchange traded funds dedicated to TIPS.

I-Bonds are also a hedge against inflation. Investors can buy up to $10,000 per year but will not have access to the funds for 12 months.

At the end of the day, it’s important to be aware of inflation risks.

“Inflation is stealth; she kind of sneaks up on you,” Cheng said. “You just want to be proactive so it doesn’t become a problem.”

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Gary B. Graves

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