This is a guest post from Stacy B Miller, who will give you important information about retirees and inflation in 2022.
Retirees usually don’t worry about inflation. It’s not something they think about or proactively discuss with anyone. But they don’t realize that inflation significantly affects their finances.
How does inflation affect retirees financially?
Inflation not only increases the price of consumer goods, but also decreases the purchasing power of retirees. The following example can help you understand this fact clearly.
Let’s say you arrive at a fast food restaurant with your grandchildren for an evening snack. After finishing the snack, you ask the waiter to give you the bill. Once the bill arrives, you realize something is wrong. The restaurant charged you almost double the price.
You quickly call the server and ask them to make the necessary correction. To your surprise, the waiter tells you that the bill amount is correct. It’s the new price of burgers and hot dogs.
What does this mean? Previously, you could buy 3 burgers for $6. Now you have to pay $12 for the same thing. So you pay more than you did before. Previously you could get 6 burgers for $12. Now you can only get 3 burgers. As a result, your purchasing power has decreased due to inflation.
As a retiree living on a fixed income and budget, this sudden increase in the price of consumer goods hurts you financially.
According to a study by the LIMRA Secure Retirement Institute, a 1% inflation rate could eat up nearly $34,406 in financial benefits for retirees. If the inflation rate increases by 3%, that could eat up nearly $117,000.
Does this mean retirees will benefit financially when inflation is low?
Not necessarily. There are 3 valid reasons why retirees tend to suffer financially even when inflation is low, and they are explained in detail below.
First: Health care costs rise even when inflation is low
Unfortunately, the biggest problem for retirees is that they are likely to spend money on something that has become the government’s biggest concern.
Healthcare has become extremely expensive and the cost is increasing day by day. In 2014, the inflation rate was only 1.6% but the cost of health care increased by 5.4%.
Seniors were therefore deeply affected. According to reports from the Centers for Medicare and Medicaid Services, seniors spend 3 times more than working adults and 5 times more than children on health care. On average, seniors spend $18,424 per year on health care.
Second: retirees tend to spend more in the first two years after retirement.
Health care is a real expense. Retirees cannot ignore it. But what about other expenses? Travel and housing costs represent a significant portion of retirees’ expenses due to lifestyle inflation.
In our country, it is an undeniable fact that many retirees still bear the expenses of adult children. This expense is therefore always there, regardless of inflation.
Apart from this, 45.9% of retirees tend to spend almost 120% of their pre-retirement income in the first two years after retirement. This indicates that some retirees may face lifestyle inflation.
Third: there is no adjustment of social security benefits
Seniors often struggle to cope with low inflation when the Social Security Administration does not provide annual cost-of-living increases to beneficiaries.
For example, in 2016 there was no annual increase in the cost of living since the consumer price index (used to calculate the inflation rate) remained static from July 2014 to September 2015.
How can retirees cope with the onslaught of inflation?
Indeed, retirees cannot control the inflation rate. It’s not in their hands. But there are a few tips they can use to reduce the impact on their savings.
Some of them are given below:
1. Pay off debts
Retirees have little money. When they are in debt, they have to pay a significant amount in terms of interest rate. This further harms their economies. A smart tip is to get tips for living debt-freethen act accordingly.
There are many ways to pay off debt. Debt snowball, debt avalanche, debt settlement, debt consolidation and debt management can help them pay off their bills and save money simultaneously.
Once retirees are debt free, they can save the interest they had to pay earlier. They can invest money in something whose value would increase with the rate of inflation.
After retirement, it is better not to engage in risky investments, as retirees do not have an additional source of income. They should instead opt for the conservative options as they would give stable returns.
2. Reduce housing expenses
Home maintenance expenses and mortgage payments eat up a large portion of savings.
An effective tip for reducing housing costs is to move to a smaller apartment. This helps reduce overall housing expenses (this includes property taxes and home insurance) and mortgage expenses.
Last words
Inflation can eat up seniors’ retirement savings and push them into serious financial difficulty. It is the responsibility of retirees to think of a plan and fight it wisely.
Reducing expenses, eliminating unnecessary expenses, creating a realistic budget and making smart investments can help fight inflation effectively.
Please let me know your thoughts and comments below.
