How Inflation Impacts Retiree’s Expenditures

We’ve been on a financial roller coaster since the onset of COVID-19. The dramatic drops followed by the spectacular ascents have been dizzying. Cryptocurrency, the crazy rich, new kid on the block that was supposed to just keep climbing, finally tumbled to unexpected lows. Investors have been losing millions.

The stock market is always expected to be a roller coaster ride, but the pandemic has affected everything, not just the stock market. It’s affected even those things in our lives that are most stable. The price of goods from basic food to the most luxurious of extravagances seem to be going up every day.

Anyone approaching retirement who has kept their money in the safest and most conservative investment vehicles is understandably concerned about how far their savings will take them in this inflationary economy. Since we don’t know how long these conditions will linger, we must make projections based on current circumstances.

Purchasing Power In Inflationary Times

In any economy, the primary concern for retirees is purchasing power. Many retirees are on a fixed and decidedly decreased income. Even if inflation were low this is a concern for retirees.

In our current economy where inflation is high, let’s look at areas that could impact one’s decision to retire sooner rather than later

One thing that many retirees love to do with their newly unencumbered time is travel. However, due to the pandemic that may not be an option for many retirees. Unfortunately, airline prices increased 37.8% from May 2021 to May 2022, and gasoline was up nearly 49% over the same period. And, for those daring enough to go on a cruise, those prices have gone up due to higher operating costs.

Some retirees think about downsizing upon retirement. The real estate market has been wildly affected by the pandemic. Some people in the most desirable markets decided to sell their homes at unheard of prices. But staying in the same market may not be an option if they are looking to buy again. And rental prices have escalated. In May 2022, rental expenses across the nation have increased 5.1% year-over-year. Not only may rent be a new expense for retirees, but it may also be a growing expense.

Here's one more thing to keep in mind as you approach retirement. With more time on your hands, you may be tempted to spend more. A survey from the Employee Benefits Research Institute found that 45.9% of retirees spent more in the first two years after they retired than they did in the years immediately prior.

Review Your Retirement Plan

If you feel like you need to review your retirement plan to determine if your projected retirement date is still desirable, give us a call. If you’re already retired, there may be options to safely increase your income from your retirement funds. Contact me for more info.