A better option is to delay Social Security as long as possible so the government will pay you a bigger benefit. The government not only pays a certain amount each year, it will adjust it for inflation. For their remaining assets, retirees also need to be more proactive in their risk strategy and get serious about inflation protection. Instead of short-term or medium-term nominal bonds in their fixed income portfolio, retirees should seek out longer-term bonds that are inflation-adjusted with payouts that will match the income they need each year.
Such bonds are very expensive, so many retirees can’t afford this approach. That leaves taking a hard look at spending and thinking through needs and wants. One strategy is to finance needs—housing, gas, food—with safe assets such as Social Security and inflation-indexed bonds, which both offer protection in a high-inflation environment. This is critical because the price of the goods you need tend to be more sensitive to inflation. After that, finance wants—vacations or presents for the grandkids—by drawing down assets from your riskier portfolio that's invested in stocks and might vary year-to-year based on asset performance.
Inflation is the new risk to retirement. It may change bond yield and equities in unpredictable ways, and erode the value of any assets that aren't inflation-protected. Relying on the old rules, which were flawed to begin with, will no longer be sufficient.
Allison Schrager is a Bloomberg Opinion columnist. She is a senior fellow at the Manhattan Institute and author of An Economist Walks Into a Brothel: And Other Unexpected Places to Understand Risk.