Nearly Half of 65-Year-Olds Have Postponed Retirement Because of Inflation

While inflation has cooled from recent highs, many people are still feeling the damage it has done to their finances, especially Americans who are near retirement.

In fact, a recent survey found that 43% of 65-year-olds are postponing retirement because of inflation.

Here’s what’s happening with near-retirees’ finances and how you can fight inflation if you’re in the same situation.

How inflation is affecting near-retirees

While many 65-year-olds are getting ready for retirement, a Prudential survey showed that one-quarter of them expect to work part-time after they retire.

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Unfortunately, they may be right.

A separate survey from Indeed Flex, a job search app, found that nearly one-third of retirees are considering returning to work because inflation is weighing down their personal finances — and 20% have already done so.

While the latest data shows inflation has dropped to 2.6%, down from 4% a year ago, retirees need to be vigilant about growing their money to outpace its negative effects.

How you can protect yourself against inflation

Everyone’s financial situation is different, but there are some general steps that near-retirees and retirees can take to help preserve (and grow) the money they already have. Here are a few ideas.

1. Consider your portfolio allocation

The older you get, the more conservative your investments should be. But don’t be too conservative too early.

Investing in the stock market is one of the best ways to help your money grow, especially when inflation is elevated. The historical average annual rate of return of the S&P 500 is 10.2%, and even lower returns will help your money grow faster than inflation’s current level of 2.6%.

Schwab recommends a shifting investment allocation strategy as you get further into retirement, slowly getting more conservative as you age. Here’s the allocation it suggests:

  • Age 60-69: 60% stocks, 35% bonds, 5% cash and cash investments
  • Age 70-79: 40% stocks, 50% bonds, 10% cash and cash investments
  • Age 80 and above: 50% bonds, 20% stocks, 30% cash and cash investments

2. Don’t hold too much cash

This suggestion goes hand-in-hand with your portfolio allocation, but it’s important to focus on it specifically because holding too much cash can hurt your finances when inflation is elevated.

Most retirement experts recommend keeping one or two years’ worth of expenses in cash. This money should be kept easily accessible, like in a high-yield savings account.

Some experts also recommend having some cash in short-term reserves, like bonds or certificates of deposits (CDs). With some CD rates above 5%, a short-term CD could be a good way to allow your money to outpace inflation. Just be ready to have that cash locked away for a short period.

3. Be wary of taking Social Security benefits too early

Delaying Social Security benefits can be beneficial in two ways. The first is that you can maximize your benefit amount by waiting.

While you may be able to begin collecting your Social Security benefit at age 62, each year you wait to collect could increase your benefit by 5% to 8%, depending on your age.

The second benefit may be more obvious: The longer you continue working and not collecting Social Security benefits, the more you’ll earn. While delaying retirement may not be your first choice, doing so could help you improve your finances.

Finally, you may want to speak with a financial advisor if you’re trying to determine when you should retire and whether your current nest egg is ready to outpace inflation. You can search on the National Association of Personal Financial Planners website to find a good one.

They’ll look at your unique situation and help you develop a roadmap to retirement that includes all the hurdles you may face, including inflation.

Unfortunately, you can’t control inflation, but you can take some important steps to protect your finances from it. Focusing on growing your investments and potentially delaying Social Security benefits could help you make a smooth transition to retirement, no matter what inflation is doing.

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