Retirees and Inflation: How to Retire When Prices Are High

Blog posted On October 20, 2021

CMG Image

In the mid-1960s, it cost $1 to buy a movie ticket, $.30 for a gallon of gas, and $20,000 to buy a home. Today, it costs around $10 - $20 to buy a movie ticket, an average of $3.27 for a gallon of gas, and approximately $357,000 to buy a home of median value. To some extent, rising prices are a natural part of a progressing economy. Everything stabilizes when wages keep up with the increased cost of living. But what happens if you’re not receiving wages at all? For some people, rising inflation costs might be less concerning; but for those who are retired or planning to retire soon, it can be slightly more worrisome.   

The impact of inflation on retirees

With inflation often comes higher prices. As prices rise, salaries tend to rise as well. But when you’re retired and not earning a salary, inflation can just put a bigger dent in your savings. Since 2000, prices have increased by roughly 60%. The annual inflation rate is roughly 2% higher than it was back then. But the cost-of-living adjustments don’t take into account rising prices for older Americans, according to the Senior Citizens League (TCSL). For example, healthcare spending is expected to be one of your largest costs in retirement. According to Fidelity insurance, an average 65-year-old retired couple will spend approximately $300,000 (after taxes) in healthcare expenses. Healthcare costs typically grow at a faster rate than general inflation. Healthcare costs have more than doubled since 2000 and are continuing to increase today. Plus, according to a study by the Senior Citizens League (TCSL), Social Security benefits have lost more than 30% of their buying power over the past 20-plus years.

How to prepare for retirement while inflation is high

            Invest your money properly

Specific investment strategies should always be consulted with your financial advisor. Every person has a different situation, varied portfolio, and specific goals to help meet their financial needs. However, there are some investment tips that generally apply to most people approaching retirement.

  1. Have a good mix of bonds and stocks – in other words, don’t put all your eggs in one basket.
  2. Make sure your portfolio is well diversified – real estate is a good investment to help diversify your portfolio. And as inflation rises, so do the benefits of owning a home.
  3. Refinance to a fixed mortgage rate – if you don’t already have a fixed mortgage rate, now might be the time to make your move. Inflation can actually help homeowners with a fixed rate mortgage, because it will increase your home’s value while keeping your mortgage payments the same, giving you more home equity and a higher net worth.

            Work full-time as long as it’s possible

An obvious perk of working full-time is more money saved up. It also will help your Social Security benefits. Though you can begin receiving Social Security as early as 62, your benefit amount will be decreased if you don’t wait until 67 (for those born after 1960). For example, those born in 1960 will only receive 30% of their Social Security benefit if they start receiving that money at age 62. If you wait until your full retirement age to start receiving your benefits, then you should receive 100% of your Social Security.

            Find part-time jobs in retirement

Finding work even after you retire can help offset some of the higher costs associated with inflation. Working in retirement isn’t as uncommon as you might think. In 2017, roughly one-third of people aged 65 to 69 were still working part time.

Making the right money moves before retirement can help you increase your retirement savings exponentially. If you would like to explore your refinance options, let us know. To learn more about the benefits of refinancing, check out our refinance guide.


Sources: CNBC, CNN, Money, NAR, USA Today, USA Inflation Calculator, Yahoo