How Inflation Hurts Retirees and How You Can Protect Yourself

What is inflation and why is it important?

Simply put, inflation means prices go up and your purchasing power goes down. It’s that painful pinch you feel when you pull out your wallet at the grocery store or at the gas pump.

If you have a limited or fixed income, as many retirees do, inflation can take a toll on your lifestyle and your nest egg. You can receive the same amount of money, but you cannot buy the same goods and services with it.

Consumers have been paying more – a lot more – for food and fuel for some time now. But the price increases didn’t stop there. (And you, Netflix?) According to the Bureau of Labor Statistics, inflation jumped 7% in 2021, the biggest increase in nearly 40 years. And core inflation, which excludes volatile food and energy prices, rose 5.5% from a year ago. January’s figures were even worse: the consumer price index showed prices overall rose 7.5% in January from a year ago.

Unfortunately, Social Security’s 2022 cost-of-living adjustment (COLA) — a generous 5.9% — won’t help retirees much. High prices are expected to significantly reduce this increase in benefits each month, and the 14.5% increase in Medicare Part B premiums this year will likely swallow up whatever is left.

So what can you do to ease the pain of inflation? Here are some steps to consider:

Rethink your portfolio

Whether you’re already retired or want to retire in the next few years, to generate a real return on your investments, you need to earn more than you lose to inflation. (Currently, that would mean earning more than 7%.)

Thanks to a strong market, you may have achieved this goal in the past year. Going forward, however, you may want to make a few tweaks to ensure you can sustain those inflation-beating returns.

Your financial advisor can help you choose the appropriate options and opportunities based on your time horizon, risk tolerance and goals. And there are plenty of strategies to consider, including investing in dividend-paying stocks, real estate investment trusts (REITs), gold, fixed-income annuities, U.S. Treasury inflation-protected securities (TIPS ) and IShare TIPS exchange-traded funds (ETFs).

Review your income

Are there any steps you can take to increase your income, even if it’s only a temporary increase, to ride out this current wave of inflation?

If you’re already retired, that might mean doing freelance consulting, taking a part-time job, or selling some of your star wars collectibles on eBay. Other options could include potentially using a reverse mortgage to supplement your income or, after careful analysis of your investments, temporarily increasing your required minimum distribution.

If you are still working, did you get a raise this year? Was it enough to cover your rising cost of living? If your income has not increased by more than inflation, you have effectively taken a pay cut. You might want to consider asking for a bit more or a one-time bonus.

Control your expenses

When was the last time you sat down and carefully considered your budget? Spending drift is real — and you can be an unwitting victim if you’ve put most of your bills on autopay. It’s easy to fall into the trap of thinking, “Well, it’s only a little more each month,” for a subscription service, club membership, or other discretionary expense. But those monthly expenses can add up if you’re not careful.

Are there places where you can cut your expenses? You might want to start where inflation hits hardest — by eating less, spending less on certain foods, and planning car trips more carefully to save fuel.

It can also be a good time to assess your debt. Would refinancing your mortgage or taking out a bill consolidation loan while interest rates are still low help you free up some cash when times are tight?

Do not panic

Imagine you’re in California, driving down the Pacific Coast Highway. On your right, the sun sets on the beach, and it’s beautiful. On your left, traffic is at a standstill due to a serious car accident. There are sirens and flashing lights. And the wreck gets all your attention – it gets everyone’s attention – instead of the beautiful sunset.

Don’t let this happen to your retirement.

If you’re worried about inflation, be proactive and ask for help if you need it.

Having the right plan in place can help you cut through the noise and stay focused on the amazing years ahead.

Kim Franke-Folstad contributed to this article.

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