Should Inflation Kill Your Near-Term Retirement Plans?

If you’ve been following the news lately — or looking at your credit card bills — then you’re probably aware that living costs are sky-high. You can thank inflation for that.

In September, the Consumer Price Index rose 8.2% on an annual basis. While that increase paved the way to an 8.7% cost-of-living adjustment for Social Security recipients, it’s also an indication that we’re nowhere close to getting relief from inflation.

If you’re on the cusp of retirement, you may be wondering whether inflation should impact your plans — or prompt you to delay your workforce exit. The answer? It depends on your financial circumstances and the toll higher living costs might take on your retirement.

What income sources do you have to look forward to?

The danger of retiring while inflation is so high is that you might struggle to keep up with your living costs in the absence of your regular paycheck. Also, retirement might be a harder adjustment if you kick it off at a time when things are so expensive.

This doesn’t mean inflation has to ruin your retirement plans. And if you have a number of income sources to look forward to, then you may be in a position to move forward with your workforce exit without struggling to manage your expenses.

Let’s say you’re sitting on a decent-sized nest egg. Withdrawals from savings, combined with Social Security benefits, could make your living costs manageable — even at a time when they’re up.

At the same time, it’s important to recognize the risks of retiring during rampant inflation. You may have to take larger withdrawals from your IRA or 401(k) plan than you may have initially planned on. That could increase the risk of you depleting your cash reserves in your lifetime and struggling during the latter stages of your retirement.

You may also have to get creative in carving out new income sources in light of inflation. That could mean working on a part-time basis. But if that’s something you’re willing to do, you might manage reasonably well, despite soaring living costs.

What adjustments can you make to your retirement plans?

While the income sources you have at your disposal might dictate whether a near-term retirement is a go in light of inflation, that’s not the only thing to consider. Also think about what you want retirement to look like and whether it’s possible or desirable to tweak your plans.

Maybe your goal in retiring soon is to do a lot of travel. If you think you won’t be able to afford that, you may decide it makes more sense to keep working and wait for living costs to decline. But if you have simpler plans for retirement, a few adjustments could make a near-term retirement feasible, despite inflation.

Unfortunately, we don’t know when inflation levels will start to come down. And we could be in for many more months of sky-high living costs. For a near-retiree, that could easily pose a challenge. But think about the tools you have (like added income sources) to combat inflation, and also think about the different steps you can take to work around it before deciding whether your retirement needs to be delayed.

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