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Blog Articles: Inflation’s Impact on a Retiree

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Inflation hurts everyone. It seems to reach every sector, product and business in one way or another, whether it raises the cost of heating your home, lunches or road trips. However, if you’re a retiree, you may be particularly worried about inflation because your spending habits and income sources might be disproportionately exposed to inflation.

Inflation means fluctuations to the dollar’s purchasing power. All of us are being affected by the current inflation, states Rudy Beck of Beck & Lenox Estate Planning and Elder Law, LLC. Inflation’s impact on a retiree may have a significant effect on the ability to cover costs of living and maintain a quality of life, says Kiplinger’s recent article entitled “Is Inflation Costing You More as a Retiree?”

  1. Why Could Inflation Impact Retirees Disproportionately. Inflation impacts people differently. There are many who may not feel the effects of inflation when compared to others. However, retirees tend to spend larger portions of their income on items highly impacted by inflation, such as housing, food, gas and health care, all of which are seeing the full effect of inflation.

The recent rise of inflation forces a lot of retirees to address tough questions about how to protect their retirement savings, while covering their costs of living.

  1. The Cost of Inflation. Retirees’ sources of income may be at risk to large inflation spikes. Retiree likely have most of their income tied to markets or in fixed income. These two sources are highly impacted by inflation. Social Security does offer COLAs, but the last increase was 5.9%, which falls short of the 8% to 9% increase in prices we’ve seen over the past year.

Retirees frequently use savings to get them through retirement. However, when inflation happens, the purchasing power of savings declines. As a result, retirees must withdraw larger amounts of savings to cover the costs of living. This shrinks the lifespan of retirement savings.

  1. Protect Yourself with Hedges against Inflation. Inflation-protected securities can be a way to keep income on pace with inflation. Treasury Inflation-Protected Securities, commonly known as TIPS, offer an interest distribution rate that keeps pace with the CPI inflation rates. This investment has helped retirees mitigate inflation and maintain their quality of life throughout retirement without worrying about outliving their savings.

Inflation’s impact on a Retiree and their savings create a stormy forecast ahead due to inflation. Income sources for retirees are largely inflation-exposed, and their spending habits tend to be on products and services affected by inflation. If you are already working with a financial advisor, make sure you are confident the advisor is doing everything possible with your investments to stretch them.  Your estate planning attorney like the ones at Beck & Lenox can refer you to an advisor if you do not have one.

Reference: Kiplinger (July 16, 2022) “Is Inflation Costing You More as a Retiree?”

 

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