How Inflation Hurts Retirees and How You Can Protect Yourself – Kiplinger’s Personal Finance

What is inflation, and why does it matter?

In simple terms, inflation means prices are rising, and your purchasing power is declining. It’s that painful pinch you feel when you pull out your wallet at the grocery store or gas pump.

If you’re on a limited or fixed income — as many retirees are — inflation can take a significant toll on your lifestyle and your nest egg. You may have the same amount of money coming in, but you can’t buy the same goods and services with it.

Consumers have been paying more — a lot more — for food and fuel for a while now. But the price hikes haven’t stopped there. (Et tu, Netflix?) According to the Bureau of Labor Statistics, inflation surged by 7% in 2021, the largest increase in nearly 40 years. And core inflation, which excludes those volatile food and energy prices, rose 5.5% from a year ago. The numbers in January were even worse: The Consumer Price Index showed prices were up 7.5% overall in January vs. 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 take a sizable bite out of that boost in benefits every month, and this year’s 14.5%  increase in Medicare Part B premiums will likely gobble 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 looking to retire in the next few years, to generate a real return from your investments, you must earn more than you’re losing to inflation. (Currently, that would mean earning more than 7%.)

Thanks to a strong market, you may have achieved that goal this past year. Looking ahead, however, you might want to make some changes to ensure you can maintain those inflation-beating returns. 

Your financial adviser can help you decide which options and opportunities are appropriate based on your time horizon, risk tolerance and goals. And there are plenty of strategies to look at, 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 steps you can take to increase your income, even if it’s only a temporary bump, to get you through this current wave of inflation?

If you’re already retired, that might mean doing some freelance consulting, taking a part-time job or selling some of your Star Wars collectibles on eBay. Other options could include potentially utilizing a reverse mortgage to supplement your income …….


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