High Inflation Hits Retirees Hard

With the New Year upon us, we all have the opportunity for a new start. Many of us still abide by old habits and set New Year resolutions, hoping to kick start the year with specific goals. For some, this might mean a commitment to better health in 2022, taking on a new skill or hobby, strengthening relationships, more spiritual growth, or other personal goals. Get this, according to a 2021 survey, over fifty percent said that improving their health and fitness was their top resolution for the year. Forty-eight percent cited weight loss as a goal. And third in line was a desire to save more money, cited by forty-four percent of respondents₁. 

While I have my own personal areas where I’d like to make some enhancements in 2022, I believe that this is an opportune time of year for us to really focus on our finances. Whether you’re new to saving and budgeting or nearing retirement, we all have a clean slate to begin the year out right and set ourselves up for a greater chance of financial success. And those forty-four percent of folks who want to save more money this year? Well, they have the right idea, but saving money alone may not be enough. 

There are many factors that come into play when saving for your retirement. Creating a big pile of money is great, but there’s more to financial success than that. Preparing for retirement today means facing a host of challenges not seen by our parent’s generation. Not only have pension plans gone by the wayside, but today’s retirees need to factor in taxes, an ever-volatile stock market, increasing health care costs, ability to create measurable and predictable income, and more. Yet one key threat to your retirement is often overlooked – and that is inflation. It’s often called a “silent killer” of retirement plans due to its ability to slowly sneak up on you – goods and services creep up just a little bit each year but over time they can take a big bite out of your purchasing power. Lately folks, this is no joke.

And not only does inflation affect the prices of consumer goods, but the federal government also uses it as a benchmark in determining whether to increase contribution limits to qualified retirement plans or to raise monthly Social Security benefits. Milton Friedman once called it, “The one form of taxation that can be imposed without legislation.” 

For a retiree, the inflation rate affects how much your retirement dollars will really be worth. Inflation diminishes your buying power and can be particularly troublesome for seniors because they are more likely to spend their money on things that tend to increase in price, such as healthcare. In addition, housing, travel, and supporting adult children also influence how much seniors spend.

As if the pandemic hasn’t been hard enough on retirees, those living on low to moderate incomes have been hit with the one-two financial punch of rising inflation and low interest rates. Low inflation becomes even more problematic when the Social Security Administration (SSA) doesn’t issue an annual cost-of-living increase for those receiving benefits.

Now luckily, due to the spike in inflation in 2021, the Social Security Administration announced a cost-of-living adjustment to 2022 Social Security benefits that is the largest since 1983, coming in at 5.9%. But that increase still may not be enough to make seniors whole again, for a few reasons. While inflation moderated a bit last summer, prices are still rising. What’s more, the cost-of-living adjustment may also be somewhat undercut by the fact that Medicare premiums, which are deducted from one’s Social Security check, are also rising so this reduces the amount left over to pay for other essentials.

But while seniors can’t directly affect the inflation rate, there are ways we can help to minimize the shadow it casts over our retirement.

For example, you could consider reducing your housing costs. Trading in a larger home for a smaller one, even if the mortgage is paid off, reduces the monthly outflow for property taxes, utilities, homeowners’ insurance, and maintenance.

Another potential strategy is to consider adding investments to your portfolio that are likely to increase in value as inflation rises. There are some investments and strategies that may be better positioned to see their value grow in tandem with the inflation rate. However, any decision to increase your participation in today’s volatile markets need to be considered carefully and should only be done once you’ve created a downside risk mitigation system.  Remember folks, the only two things you can control when it comes to the markets are risk and process.  And considering the fact that our “roaring stock market” may be in line for a correction sooner rather than later, understanding your strategy with a risk-first approach coupled in a defined process would serve you well.  

You know, inflation can be a retirement killer, but it doesn’t have to be for seniors who take the time to develop a plan for beating it. As American author Venita Van Caspel once said, “Inflation takes from the ignorant, and gives to the well-informed.” So take advantage of the opportunities that lie ahead of you this year to tackle inflation head-on. 

And as always – be vigilant and stay alert, because you deserve more!

Have a great week and a Happy New Year.Jeff Cutter offers investment advisory services throughCutter Financial Group, LLC, an SEC Registered Investment Advisor with offices in Falmouth, Duxbury, and Mansfield. Jeff can be reached at jeff@cutterfinancialgroup.com. Insurance products, including annuities, are offered through Cutterinsure, Inc., (MA insurance license #2080572). Cutter Financial Group and Cutterinsure are affiliated and under common control but offer services separately. Members of Cutter Financial Group’s management receive revenue directly from Cutterinsure. Any compensation received is separate from and does not offset regular advisory fees. Cutter Financial Group does not charge advisory fees on any insurance products. We do not offer tax or legal advice. Always consult with qualified tax/legal professionals regarding your own situation. Investing in securities involves risk, including possible loss of principal. Insurance product guarantees are backed by the financial strength and claims-paying ability of the issuing company. This article is intended to provide general information. It is not intended to offer or deliver investment advice in any way. Market data and other cited or linked-to content in this article is based on generally available information and is believed to be reliable. Please contact us to request a free copy of Cutter Financial’s Form ADV 2A and applicable Form ADV 2Bs. 1. https://tinyurl.com/p8htyju4