It’s a difficult time to consider or retire. Retirement investors face high and rising inflation, historically low interest rates and stock market volatility.

My husband and I are debating when it will be the right time for him to retire. His financial concerns change over time, and right now his main concern is inflation.

When the stock market goes down, it goes up. The problem with inflation is that when prices go up, they don’t come down. He is fully aware that over time, inflation will eat away at purchasing power.

Inflation is generally defined as “a sustained increase in the price level of goods and services throughout an economy”. Inflation is neither entirely good nor entirely bad. While too much inflation is generally considered bad for an economy, too little inflation is also considered harmful.

Many economists advocate a happy medium of low to moderate inflation, around 2% per year. Inflation for 2021 was 7%, and we are currently hovering around 8%. This is something the United States has not seen since the early 1980s. Whether this is a short-term or longer-term blow remains to be seen.

The main concern of retirees is the impact of inflation on their ability to live well during their retirement years.

Inflation affects how they allocate their money to important necessities such as health care. Other areas that can drive up retiree spending are housing, travel and support for adult children. Higher costs for food, gas and utilities mean less money for discretionary spending.

Although seniors cannot directly influence the rate of inflation, there are ways to minimize the shadow it casts on their retirement. Standard options include cutting expenses, switching to cheaper substitutes, or finding bargains. Many retirees are discovering how to do meaningful things more affordably.

Another smart move is to reevaluate your investment portfolio. The Dimensional Fund Advisors research team recently assessed the ability of common investing and spending strategies to promote smoother retirement consumption.

According to Dimensional, “An income-focused approach to investing can help reduce retirement income risk, even in difficult circumstances.

The income-based approach has two distinctive ingredients. The first is moderate equity exposure in retirement to help mitigate market risk. The second is an allocation to bonds designed to protect against the risks of rising inflation and falling interest rates.

Since equities, over time, have a much higher yield than bonds, maintaining a slightly higher allocation will help mitigate inflation risk. Another strategy is to use inflation-adjusted fixed-income products, such as inflation-protected Treasury securities.

Other common portfolio changes include adding exposure to real estate or energy sector stocks that are likely to rise in value as inflation rises.

Annuities, which are specifically designed to manage longevity risk, are another option. We also encourage our clients to delay starting Social Security until age 70. This increases the initial Social Security payment, and this higher payment amount is the basis to which cost-of-living adjustments are applied, resulting in higher lifetime payments. This is especially important for spouses with significantly higher lifetime incomes.

Key findings from Dimensional’s research include: Retirees who follow conventional wisdom and invest in minimum short-term fixed income securities are more vulnerable to increases in inflation or decreases in interest rates.

Pursuing an income-based allocation can provide more predictable retirement consumption by addressing

both risks.

Remember, however, that inflation is just one of many factors that investors must deal with when building a portfolio for the future. The right combination of assets for any investor will depend on that investor’s unique goals and needs. For those who are particularly sensitive to unexpected inflation, the protection offered by inflation-linked securities always appears to be the most effective.