Experts will tell you the greatest risk in retirement is longevity. That because the longer you are retired, the greater the impact of inflation. While virtually no one actually lives on a fixed income, keeping up with inflation is tricky.
Social Security COLAs help, that rare person with a pension and COLA – think government workers – gets a boost and the growth in a portfolio using the 4% withdrawal strategy adjust for inflation. So what’s the problem?
The Senior Citizens League has received more than 200 emails over the past month, with many retired and disabled senders describing the dire situations they face as rapidly rising inflation makes it impossible to pay the bills.
The problem is those adjustments are often insufficient and inflation’s impact varies by location and retiree lifestyle.
There are a few things you can do to cope.
- Strive to begin retirement with more income than you think you need. Aim for income replacement close to 100% of pre-retirement income. That creates a cushion.
- Rethink really early retirement- like in your mid 50s. The longer retired the greater the risk.
- Build supplemental income streams that create dividends/interest. Allow them to reinvest until you need to tap them for inflation.
- If using the 4% rule – or similar- don’t apply the inflation adjustment the first few years of retirement. Save it for a rainy day.