Retirees are doubly squeezed by inflation and declining retirement savings; many pre-retirees are also understandably worried. For many seniors, this is a deja vu of the 1960s and 1970s, when the United States experienced high inflation and volatile stock markets.
To solve these problems and shore up your retirement finances, you’ll want to manage both sides of the “magic formula for retirement security”:
I > Eor retirement income greater than your living expenses
This means looking for ways to increase your retirement income, while reducing or containing your living expenses. Let’s look at some strategies for each side of this formula.
Increase your retirement income
Stay the course with retirement investing. Over the past century, over long periods of time, stock market returns have exceeded inflation. This offers a strong argument for staying invested now. And if you’ve invested heavily in stocks over the past few years, your retirement savings should be well ahead of inflation, even taking into account the recent stock market decline.
Recent stock market volatility is testing our resolve to stay invested in the market, so look for ways to help you stay the course. One method is to cover most or all of your basic expenses with guaranteed sources of retirement income such as Social Security, an annuity, or a pension that won’t drop if the stock market crashes. This will help you ride out the stock market storm.
Another possibility is to switch to more income-generating stocks, such as mutual funds or ETFs that focus on companies with consistent dividend growth. This strategy has the potential to increase your investing cash flow while reducing volatility.
Review your savings withdrawal strategy. Many retirees determine the annual amount to withdraw from their IRA and 401(k) accounts using the IRS’ required minimum distribution, which is a conservative withdrawal method. Research I conducted at the Stanford Center on Longevity indicates that you could increase these amounts by 25% to 50% without seriously compromising your long-term safety.
Invest in Series I US Savings Bonds, Treasury Inflation Protected Securities (TIPs) or TIPS Funds. The interest rate you earn on these investment vehicles is linked to inflation, so your savings won’t lag behind in terms of earning capacity. These could be good investments for any money you currently have invested in money market funds or bank savings accounts, which still pay virtually no interest.
Consider tapping into the equity in your home. Most real estate in the United States has appreciated significantly in recent years, you may want to explore several ways to use the equity in your home to generate additional cash in retirement that could help pay for the increase. living expenses. Today’s pressure could also give you the boost you need to consider downsizing, exploring renting a spare room, or considering a reverse mortgage.
Keep working or work part-time. For every month you delay withdrawing your retirement savings or starting Social Security benefits, your eventual retirement income will increase, and that could be significant if you could delay retirement for a year or more. Even if you’re already retired, every dollar of work income helps reduce the the money you take out of your investments, saving that money for later.
Buy a growing annuity. You can buy lifetime retirement income that increases at a fixed rate, such as 2%, 3%, or 4%. This helps your income keep pace with inflation.
Manage your living expenses
Reviving the cost-cutting strategies of the 1960s and 1970s. Do you remember swapping chicken for beef? Perhaps the modern version replaces any type of meat with cheaper vegetables, lentils, rice, pasta, quinoa and buckwheat. You could improve your health in the bargain.
There are also proven strategies to reduce your transportation costs. Retired married couples might be able to get by with one car instead of two, walk and cycle more to get around town, carpool, use public transport or look for other ways to drive their cars less frequently.
Control your energy expenditure. If you haven’t already, look for ways to contain rising heating and cooling costs. Examples include adding insulation, reducing cooling costs by turning down the air conditioning and opening windows at night, reducing heating costs by raising the thermostat and wearing sweaters indoors, etc.
Look for savings with your insurance premiums. If you have expensive life insurance premiums, ask yourself if your dependents will really need this support when you’re gone. Your adult children may already be up and really don’t need the money. If you have substantial cash values in whole life insurance, you may be able to convert those amounts to an annuity to supplement your retirement income.
For Medicare supplemental medical insurance, see if a Medicare Advantage plan can meet your needs instead of having traditional health insurance coupled with a Medicare supplement plan. Of course, you’ll want to make sure you can still get satisfactory medical treatment for your unique medical needs before you make any changes.
Now you get the picture. The overall goal is to increase the money you have to spend on your true “needs”, while carefully considering reducing your “wants”. We survived the 1960s and 1970s, we can start again!