6 Costs That Are Making Retirement More Expensive

Rising prices can be tough for anyone who relies on a set income in retirement. Inflation hit 7.9% in February 2022, a 40-year high. The rising prices for gasoline, shelter and food are contributing the most to the increase. “This is extremely detrimental to most retirees whose income is at least partially fixed,” says Doug Carey, owner of WealthTrace, a financial and retirement planning software company in Zionsville, Indiana. “I have found that a retiree with a $40,000 per year pension will lose 25% of the value of that pension in real dollar terms in just three years at today’s inflation rate.”

[See: 10 Costs to Include in Your Retirement Budget.]

The Consumer Price Index tracks inflation and measures the increase in prices for goods and services. The high inflation rate signals that overall costs for Americans have gone up by 7.9% compared to this time a year ago. The CPI is divided into categories, and some goods and services have higher rates of inflation than others. “It’s important to understand the root causes of rising prices so that we can find solutions,” says Samantha Hawrylack, founder of How to FIRE, a personal finance blog.

Inflation can occur due to factors including the rising costs of production, supply chain issues, an uptick in money that is circulating and the devaluation of a currency. During the past several decades, inflation has typically been low, such as 3 or 4% year over year, but there have been several points in time when it was high. “There can be a number of reasons why prices may suddenly or drastically increase,” Hawrylack says. These often consist of natural disasters, war and government policies. “When these factors occur, it can have a ripple effect on the cost of goods and services,” Hawrylack says.

The costs that are straining retirement budgets include:

— Groceries.

— Medical expenses.

— Gas prices.

— Housing costs.

— Higher utilities.

— Entertainment.

Here is a breakdown of items that have gone up in price and could impact retirees who depend on Social Security, a pension, retirement account withdrawals and other fixed sources of income to cover the cost of living.

Groceries

Food prices are expected to go up between 2.5 and 3.5% in 2022, according to the Food Price Outlook for 2022 issued by the U.S. Department of Agriculture. If you shop at the same supermarket every week, you may have noticed beef prices on the rise. In January 2022, beef prices were 43.9% higher than beef prices in January 2021.

Evaluating the price tags on the shelves of the grocery store could help you manage food costs for the short-term. “If the price of beef is up and chicken is not, replace beef with chicken to save money,” says Adam Wright, a certified financial planner and owner of Wright Associates in Pittsburgh. Also, ask about senior discounts and promotions or try a coupon app to reduce your food bill.

Medical Expenses

While Medicare provides health coverage for those age 65 and older, there are deductibles and co-payments, along with out-of-pocket costs for items the program does not cover, such as hearing aids, glasses and dental care. People covered by traditional Medicare pay an average annual cost of $6,168 for health care, according to a 2021 AARP Public Policy Institute report. However, one in 10 Medicare beneficiaries spend at least 52% of their household income on health expenses. The inflation rate for medical care services was 2.4% in February 2022.

If you’re concerned about how much you’re paying for health care, it may be time to review your plans and benefits. Ask your pharmacy about ways to save on prescriptions, and remember to compare options for the best Medicare Part D plan that meets your prescription medication needs.

[Read: What Medicare Does Not Cover.]

Gas Prices

Even if you don’t have a daily commute, filling up for running errands and getting to activities has become more expensive during the last year. The war between Russia, a major gas and oil supplier, and Ukraine creates uncertainty about the future of fuel. The price of gas rose 38% from February 2021 to February 2022.

While it may not be possible to permanently park your vehicle in your driveway, it might be beneficial to group together numerous stops to make fewer trips. You could try going to the grocery store once a week or picking up a several month supply of medications at the pharmacy to reduce your trips.

For retirees looking to replace their vehicle, it may be worth waiting if possible. The price of used cars and trucks went up by 41.2% during the last 12 months.

Housing Costs

If you currently rent a home or are considering selling your home and renting a place, take care to research places and costs. Average monthly listed rents have increased by 14% over the past year, according to data from the real estate firm Redfin. The rent prices in some areas are escalating even faster. Austin rents went up by 40% during 2021. Other cities with high rent increases include New York city, Miami and Portland. To save on rent, you might opt to downsize to a smaller, more affordable place. If you have family that lives in a less expensive city, you could consider moving to that area.

Higher Utilities

Your bills for utility services may have recently increased, even if your usage has remained the same. The inflation rate for utility services hit 23.8% in February 2022. To lower your bill, you might look for ways to use lights less frequently, wash clothes in cold water, hang sheets and towels to dry instead of putting them in the dryer and adjust the temperature of the thermostat when you are out of the house.

[See: Expenses You Can Eliminate in Retirement.]

Entertainment

With the price of food and gas on the rise, outings at restaurants and visits to see family or explore the U.S. are getting more expensive. Higher costs are causing some people to change plans and consider less expensive outings. If you do travel, you can avoid eating out for every meal. “Instead of staying at a hotel, stay at an Airbnb with a kitchen to minimize the costs of dining out,” Wright says.

More from U.S. News

The Most Affordable Places to Retire

How to Pay Less Tax on Retirement Account Withdrawals

10 Ways to Increase Your Social Security Payments

6 Costs That Are Making Retirement More Expensive originally appeared on usnews.com

Related Categories:

Latest News

More from WTOP

Log in to your WTOP account for notifications and alerts customized for you.

Sign up