It’s challenging for everyone, but particularly for those on a limited income

Today it’s common for Americans to spend two, three or even four decades in retirement. This means people have ample time to relax and achieve a bucket list of dreams. However, the flip side is that retirees need to ensure they have enough savings to last through their lifetime. One complicating factor is that inflation is a fact of life, and it can result in meaningfully higher expenses over time.

As you’ve seen in recent headlines, inflation rates are the highest they’ve been in many years. The consumer price index rose 6.2 percent between October 2020 and October 2021 — significantly higher than the 1 percent to 2 percent annual increases we’ve gotten used to seeing over the past decade.

Inflation creates challenges for all consumers, but it can be particularly difficult for those who are retired and living on a limited income. Higher inflation can throw off the assumptions for regular expenses reflected in your retirement plan. It’s unknown whether this uptick in living costs will persist, but you should prepare for the impacts of inflation regardless. Here are a few things to know and do:

• Keep it in perspective: Today’s inflation rate of over 6 percent is high by recent standards but nowhere near a record. We may be a long way from seeing an extended period of high inflation like we had in the 1970s and 1980s, where inflation in the United States peaked at 13.5 percent.

Since 1982, inflation had only been higher than 5 percent in one calendar year (1991), until now. While another decade-long inflation threat is unlikely, living costs in the near term may continue to rise at a fast pace.

• Revisit your expenses: If the cost of essential items, such as food and gas, plus the cost of discretionary expenses, such as travel, are busting your budget, you may need to explore ways to cut back. Can you buy food in bulk to save money? Should you reduce your casual driving to cut down on gas? Are there other discretionary expenses you can forego, at least for now? Addressing these questions today could prevent you from spending down your assets too quickly.

• Adjust your investments: Is your portfolio properly positioned to keep pace with inflation? It may make sense to keep a portion of your assets invested in stocks. Over the past 30 years, the Standard & Poor’s 500, a benchmark of U.S. large cap stock market performance, gained, on average, more than 10 percent annually, well above the 2.3 percent average annual inflation rate over that same period. Earning higher returns on money you may need 10 to 20 years in the future should help it grow sufficiently to meet inflated income needs at that time, but a large portion of your portfolio should still be invested more conservatively to protect it from market volatility.

If you are experiencing financial strains as living costs rise, you may want to consider other options, such as a part-time job or consulting. Even in retirement, it is important to be flexible to react to changing circumstances that may affect even your best-laid plans. Be sure to check with your financial advisor to discuss your most attractive options to manage today’s inflation risks.

Bob Bonfiglio is a private wealth advisor and managing director with Rise Private Wealth Management, a private wealth advisory practice of Ameriprise Financial Services Inc. in Bedford. He can be contacted at bobbonfiglio.com or by calling 603-606-4255.