It's no secret that these days, the general cost of living is way up. Consumers are paying more for everything from gas to groceries to utilities, and unfortunately, we could get stuck in this holding pattern of rampant inflation for many more months until things start to ease.
In December, the Consumer Price Index rose 7% from a year prior, marking the highest increase since 1982. And while seniors on Social Security did get a 5.9% cost-of-living adjustment to compensate for the rising cost of consumer goods, clearly, that raise is already falling short.
If you're retired, you may be struggling to stick to your budget given the recent rise in inflation. If that's the case, here are a few moves you might consider making.
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1. Withdraw more aggressively from your savings
If you have a healthy amount of money socked away in your IRA or 401(k) plan, you may be OK to increase your withdrawal rate temporarily to help compensate for higher living costs. Generally speaking, it's important to not go overboard with retirement plan withdrawals, because the last thing you want to do is deplete your nest egg prematurely. But if you have to temporarily increase your withdrawal rate from, say, 3.5% to 4% to compensate for higher living costs, it's a far better bet than racking up debt on credit cards just to get by.
2. Tap your home equity
Many people enter retirement with their homes paid off, or with large amount of equity in their homes. This especially holds true today. During 2021's third quarter, home equity rose to $9.4 trillion, according to Black Knight, which means property owners are sitting on more equity now than before.
If you have home equity to borrow against, now may be a good time to take out a home equity loan or line of credit (HELOC). You can then use that money to cover your higher living costs until prices start to come down.
Of course, the danger in taking out a home equity loan or HELOC is that it's a secured loan. And if you fall too far behind on your payments, you could put yourself at risk of losing your home. At the same time, home equity loans and HELOCs are a very affordable way to borrow, and given today's equity levels, they're also fairly easy to qualify for.
3. Use your home as an income source
If you're sitting on a larger property than you need, you may have some options for converting your home into a source of cash to get though these trying times. First, if you're willing to downsize, you can sell your home and buy a less expensive one, all the while using the proceeds of that sale to pay your living costs. This may, however, not be a great immediate solution, since it can take months for a home to close on and you may need an income boost now.
Another option is to see about renting out part of your home. That could mean having a tenant come live with you in a separate area of your home, like a finished basement. Or, you may be able to rent out storage space in your home or even a parking space in your driveway. Remember, these aren't things you have to do on a permanent basis -- just until inflation slows down and you're able to manage your bills more easily.
Inflation is hitting a lot of people hard, and if you're on a fixed retirement income, you may be struggling. These moves could help you manage your expenses in the face of inflation -- and minimize your financial stress during these trying times.
