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Written by Maurie Backman for The Motley Fool->
Inflation rose above 3% in March and could continue.
Retirees may have a hard time coping with higher costs.
The right investment mix, Social Security strategy, and approach to spending could make inflation easier to deal with.
Inflation is a part of life, and it's something retirees are encouraged to plan for. But the persistent inflation that's been a mainstay of the economy in recent years may be causing retirees today a world of stress.
In March, inflation rose 3.3% on an annual basis, according to the Consumer Price Index. And while that increase was largely fueled by the Iran conflict, it's hard to know when prices will finally settle down.
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While inflation is a tough thing for all consumers to cope with, retirees may be feeling it more. But that doesn't mean the situation is hopeless. Here are three smart income moves to make now if you're retired or are about to be.
It's natural to take a more conservative approach to investing in retirement. After all, you don't have years to ride out a market downturn when you're tapping your savings for income on a regular basis.
On the other hand, you don't want to play it too safe in your portfolio. You need to hold onto assets that can beat inflation, and stocks are generally your best bet in that regard.
That's why it's important to keep a portion of your portfolio invested in stocks -- and a decent one at that. A 20% stock allocation might give you more peace of mind in terms of market volatility. But it could also cause your savings to stagnate. You may want to aim for 40% to 60% of your assets in stocks so your money can keep growing.
A stock allocation that high might seem risky at first. But you can mitigate that risk by keeping one to three years' worth of living expenses in cash. That allows you to leave your portfolio untouched during a market downturn.
Unless you're eligible for a pension or you buy an annuity, you might have just one guaranteed income source at your disposal in retirement -- Social Security. So if you haven't claimed benefits yet, you may want to wait to file beyond full retirement age.
If you were born in 1960 or later, full retirement age is 67. And it's when you're eligible for your monthly benefits without a reduction. But for each year you delay your claim past that point, your benefits grow 8%, up until you turn 70.
Not only should starting with a larger monthly check make inflation easier to cope with, but remember that Social Security benefits are eligible for an annual cost-of-living adjustment. The more money you start out with, the more money you're apt to get as those raises come through from year to year.
When you've worked hard for decades and imagine a certain retirement lifestyle, it can be hard to stray from that plan. But if inflation is eroding your savings, it's important to be open to downsizing your spending to preserve your nest egg and avoid financial struggles.
That doesn't necessarily mean having to make major cuts, though. Reducing your spending by even a few hundred dollars a month could make a big difference. That could involve canceling subscriptions, dining out a bit less frequently, or forgoing some upgrades when you travel.
Of course, if you're really having a hard time keeping up with rising costs, bigger changes like moving to a smaller home may be necessary. But you don't automatically have to jump to that point. Start making smaller changes first and see what happens.
Stubborn inflation is a problem today, and it may be here to stay for a while. If you invest strategically, claim Social Security at the right time, and take a flexible approach to spending, you can set yourself up to manage those nagging rising costs.
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