Inflation is finally slowing after reaching a 40-year high in 2022. That's great news, but for some seniors living off a fixed income, it may come too late. Many were already worried about their ability to pay for all their retirement costs -- and that's only worsened with costs rising so sharply this last year.
It's an uncomfortable situation, and there aren't any easy solutions. But here are three things you can try if you find yourself draining your retirement savings faster than you planned.
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1. Understand why it's happening
Inflation has undoubtedly had a major effect on people's spending and retirement account withdrawals over the last year. But that may not be the sole reason you're using up your savings faster than expected. It's a good idea to step back and review your spending habits and investments to determine whether there's another problem.
Perhaps you've been spending a lot of money on things you didn't actually need. Or maybe you made some poor investments that have caused you to lose money recently. Maybe you've overextended your budget trying to help family members who are struggling financially. Take note of anything you think might be a contributing factor so that you can address it.
2. Make changes to your investment strategy as appropriate
If you believe poor investment choices have hurt the balance of your retirement accounts, you may want to make some changes to preserve what you have left. For example, you might be able to move some money out of stocks and into safer investments like bonds. Bonds typically don't earn as much annually, but they're also less volatile, so there's a smaller chance you'll lose money in the near term.
You could also consider selling poorly performing assets and investing in stocks or funds that are doing well. But it's important to focus on more than just recent performance when deciding whether to do this. Even the most successful companies have rough patches, though they often bounce back. However, if you don't believe a stock has good long-term growth potential, it might not be the right fit for your portfolio.
Finally, pay attention to what you're paying in investment fees. Some actively managed mutual funds, for example, charge you expense ratios, or annual fees, of more than 1% of your investment. So if you have $100,000 in the fund, you're paying at least $1,000 per year just to own it. By contrast, you can find many affordable index funds with expense ratios as low as 0.03%. Investing in one of these could help you grow your wealth and hold on to more of what you earn.
3. Look for ways to reduce spending or increase income
This part could be pretty straightforward for those who fear they've been overspending on discretionary purchases. Create a budget to track your spending and try to limit yourself to just the essentials for a while. Hopefully, doing so will help you reduce your annual expenses so you can leave your remaining savings invested for longer.
But things are tougher for those already on a tight budget. In that case, your best option is to find alternative sources of income you can use to supplement your retirement savings. That could enable you to withdraw less from your retirement accounts annually, leaving the rest with more time to grow.
Social Security may be an option if you haven't signed up already. Those 65 and older with low incomes or who are blind or disabled may also be eligible for Supplemental Security Income (SSI). This is an additional monthly payment administered by the Social Security Administration that you can spend on whatever you need.
You could also consider returning to work full- or part-time to give yourself a steady paycheck. There are many flexible opportunities now, including many work-from-home positions, so finding something that works with your lifestyle might not be as difficult as you think.
Unfortunately, there is no magic formula for ensuring your retirement savings last the rest of your life. Only you can decide which tips above make the most sense for you. But try to avoid pushing the problem down the road. The sooner you address the chief causes of your dwindling savings, the better your chance of remedying it without too many major lifestyle changes.
