Transcript for 6 ways to protect your retirement from rising inflation
ALEXIS CHRISTOFOROUS: High inflation continues to chip away at household budgets. Rising prices for everything from food and gas to housing and furniture are eating away at Americans' buying power. And that's especially true for people in retirement, who are living off a fixed income. Here are six ways to protect your retirement from rising inflation.
Inflation is similar to taking a pay cut. Your money doesn't go as far as it used to. So you'll want to look at ways to reduce your cost of living.
First, add up your fixed costs and your variable costs. Fixed costs include rent or mortgage, utilities, cable and phone bill, and insurance expenses. Variable costs are expenses that change, such as groceries, eating out, travel, and entertainment.
Now, subtract those fixed and variable costs from your monthly income. If you're spending more than you're earning, try to cut back on your variable spending. If you have money left over, consider using it to pay off debt or put towards an emergency fund.
If you own your home or are close to paying it off and you live in an area where home prices are on the rise, you might be able to sell your home and move to a less expensive area. Consider cities with low tax rates that are known for being affordable places to retire. If you want to remain in the same city, think about downsizing. You could sell your current home and use that money to buy or even rent a smaller place with lower overall costs. If you were planning to make a luxury purchase like buying a boat, taking an extended trip, or starting a house remodeling project, consider delaying those major expenses until inflation cools down and you can work those extra splurges back into your budget.
You may be tempted to make big changes to your investment portfolio, but try not to make emotional decisions. Stocks have proven to be an effective inflation hedge over the long term. Experts say consider adding some inflation-protected bonds or commodities and dividend-paying stocks to the mix. They also recommend withdrawing money at a conservative rate during retirement. One rule of thumb is to withdraw no more than 4% of your retirement account in any given year if you're planning on a 30-year retirement to make your savings last longer.
You can start receiving Social Security payments at age 62, but that payment increases for each month you delay. So if possible, wait until age 67 to receive your full Social Security benefit. If you can't wait until then, consider working at least until age 65 so you can take advantage of Medicare.
And finally, consider a side hustle. Not only will it bring you some extra cash, but staying active in retirement can also have physical and mental health benefits.
This transcript has been automatically generated and may not be 100% accurate.