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As Rising Prices Create Financial Pressure, Here's how Americans Can Protect Retirement Funds

With Inflation reported at a staggering 9.1%, it comes as no surprise that you need to take some extra steps to secure your fortune and exercise caution when it comes to your financial decisions.

BY SUNAYNA KANJILAL

PUBLISHED MAR 29, 2024

Every professional aims to have a comfortable retired life and starts saving up for it early on. But with rising prices, many Americans are forced to tap into their retirement funds years before they anticipated.

With inflation reported at a staggering 9.1%, it comes as no surprise that you need to take some extra steps to secure your fortune and exercise caution when it comes to your financial decisions. So what can one do to protect retirement savings from getting devalued by inflation?

Reduce Housing Cost

Let's be real, we don't need a huge space if we have a small family. Trading your big house for a smaller one, even if your mortgage is paid off, can save you a lot of money in the recurring costs like taxes, utilities, and of course maintenance.

Social security is tempting, to say the least. It is one of the few ways to get inflation-adjusted income. Most people file for Social Security when they reach Full Retirement Age (FRA). However, for every year of delayed filing, you get an additional 8% interest in addition to other cost-of-living adjustments till you reach the age of 70.

Work, Work, Work

Image Source: Pexels/Ono Kosuki — Image Source: Pexels | Ono Kosuki

If your health and other circumstances allow you to work beyond FRA, you definitely should consider it. One should be ready to earn additional income after retirement through new ventures or investments. Working post-FRA can help you maintain your physical and mental health.

Divide Your Savings – The Bucket Strategy

This strategy involves dividing your savings into three buckets, one for short-term needs, the second for mid-term, and the third for long-term. The goal is to protect your income from market volatility. As part of this strategy, you need to estimate how much money you need to spend per year in retirement and assess your priorities.

Lump Sum or Pension?

If your employer gives you the option to choose from a monthly pension and a lump sum the safer option is to choose the lump sum. The monthly pension that you will receive will not be adjusted to inflation. If you take the lump sum amount and invest it in your own way that might ensure your saving is keeping pace with the volatile market.

As per Investor's Business Daily, the $1 million required to save to ensure a great retirement has now risen to $2 million, said 401(k) plan members to Charles Schwab.

Starting early is the number one rule in order to amass a healthy retirement fund. Here are additional tips to try and secure an inflation-adjusted future.

Focus On Paying Down Debt

One should become debt-free by the age of 60 if not earlier and that includes all kinds of loans, from credit cards to high-interest loans like student loans or home loans.

Emergency Funds Are Always a Good Idea

Having an emergency fund is extremely important. The pandemic is a good example of how unprecedented life truly is, this fund will ensure your retirement saving stay intact even in a case of emergency.