 One of your biggest financial challenges in retirement may be something that’s not on your radar. It’s inflation, which is the gradual increase in the price of goods and services from year to year. Inflation is easy to ignore because the cost isn’t immediately obvious. However, it can be corrosive over time. If you don’t have a plan to keep up with inflation, you could struggle to support your lifestyle, especially in the later years of retirement. While rates may fluctuate, inflation itself is a natural occurrence. A modest level of inflation can even be a sign of economic growth. However, inflation can have a big impact over the long term. Consider the impact of even a modest inflation rate. An average annual rate of 3 percent would double your cost of living over a 24-year retirement. Social Security tries to help retirees combat inflation with something known as a cost-of-living adjustment (COLA). Benefits are increased annually based on the overall inflation rate. COLA isn’t always sufficient, though. For example, in 2017 and 2018, COLA was set to 2 percent. In 2016 it was 0.3 percent, and in 2015 there was no COLA.1 While COLA can be helpful, it may not keep up with inflation for certain services that are specific to retirees. Medicare B premiums have risen by an average annual rate of more than 7 percent over the past 50 years.2 Long-term care prices have risen at similarly high rates.3
The good news is there are steps you can take to minimize the impact of inflation on your retirement budget. Below are a few tips to help you develop your inflation strategy: Delay your Social Security claim. You are eligible to file for Social Security benefits as early as age 62. However, your benefits are discounted if you file before your full retirement age (FRA). Most people reach their FRA sometime between their 66th and 67th birthdays. You don’t have to file as soon as you’re eligible. You don’t even have to file at your FRA. In fact, you can wait all the way until age 70 to file your Social Security claim. There may be good reason to wait. Social Security offers an 8 percent annual increase to your benefit amount for every year past your FRA that you wait to file. If your FRA is 66 and you file at age 70, you’ll get four years of 8 percent increases, for a total increase of 32 percent.4 This increased benefit could help you offset inflation. You might use the extra payment to cover increasing health care costs, long-term care or other expenses. If you can afford to do so, consider waiting to file for Social Security. Don’t be too conservative. It’s natural to become more conservative with your investments as you enter retirement. After all, you’ve worked hard to accumulate your retirement assets. You likely don’t want to risk those assets in a market downturn. However, you may not want to take an approach that’s so conservative you avoid risk completely. Risk and return often go hand in hand. If you eliminate all risk from your strategy, you may end up with a portfolio that has little upside opportunity. That’s problematic, because you’ll likely need some growth to fund your retirement and to increase your income over time. Work with a financial professional to develop a strategy that minimizes risk but also offers growth opportunities. Consider long-term care insurance with inflation protection. Long-term care is a very real threat for many retirees. According to the U.S. Department of Health and Human Services, 70 percent of retirees will need long-term care at some point in their lives.5 Long-term care can cost thousands of dollars per month, and care is sometimes needed for years. Also, long-term care prices have been steadily increasing. You may want to consider long-term care insurance as a protection tool. These policies cover some or all of your long-term care expenses in exchange for an annual or upfront premium. Most policies cover care provided either in the home or in a facility. Some also offer inflation protection, so your benefit will rise to match increasing prices. Ready to develop your inflation strategy? Let’s talk about it. Contact us today at Sprouse Financial Group. We can help you analyze your needs and implement a plan. Let’s connect soon and start the conversation. 1https://www.ssa.gov/oact/cola/colaseries.html 2https://www.fool.com/retirement/2017/02/05/heres-what-51-years-of-medicare-part-b-premium-inc.aspx 3https://insurancenewsnet.com/innarticle/LTC-Costs-Continue-Outpacing-Inflation-a-508990 4https://www.ssa.gov/planners/retire/1943-delay.html 5https://longtermcare.acl.gov/the-basics/how-much-care-will-you-need.html Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency. 17381 - 2018/2/13
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