A painful stretch of inflation, including 40-year record high rates, marked 2022 and impacted Americans accordingly. Some found it difficult to maintain the amount they saved every month. Among employed adults, 25% decreased their retirement savings during the year, according to the 2023 TIAA Institute-GFLEC Personal Finance Index. As higher prices hit grocery store shelves, gas stations, housing markets and other places, the Social Security Administration increased its cost-of-living adjustment in an effort to help retirees support themselves.
While the increased Social Security benefits may be helpful, it can still be difficult to live on a fixed income when prices are on the rise. Another concern looks to the future, as uncertainty lingers in the economy. In circumstances like these, you may be looking for ways to cope and survive.
When facing inflation while living in retirement, you can consider:
— How inflation affects retirement.
— Your retirement spending patterns.
— An analysis of your budget.
— Delaying major expenses.
— Drawing on cash.
— The logistics of relocating.
— The impact of downsizing.
— Your portfolio’s condition.
How Does Inflation Affect Retirement?
During periods of inflation, it may seem that prices are going up everywhere. “In simple terms, it means you’re paying more for the same goods and services,” says Scott DePeralta, principal consultant at Scott DePeralta Consulting in San Jose, California. “For retirees, inflation can be especially problematic.” You may have begun your retirement years planning to live on a certain amount every year. With inflation, it can be harder to maintain that same standard of living.
You might consider ways to increase your available funds, including “finding additional sources of income,” DePeralta says. You might look for part-time work or start a side hustle based on a hobby you enjoy.
Your Retirement Spending Patterns
Rather than looking at what you’ve spent in the last two weeks, go through your bank and credit card statements from the last three to six months. Make a list of all the money you have spent. The exercise will help you create a report that you can review. See if your expenses have trended upward, and if so, evaluate the increase over time. This will give you an idea of how inflation has been impacting your total payments.
Pay attention to monthly bills related to debt, such as auto loans or a mortgage payments. From January 2022 to January 2023, the share of adults who reported being debt-constrained increased from 20% to 26%, according to the TIAA study.
An Analysis of Your Budget
Take some time to think about fixed and variable expenses. Fixed costs tend to be relatively consistent from month to month. They could include your rent or mortgage, utilities, phone bill, cable payment and insurance expense. Your variable costs are those that change, such as your spending on groceries and eating out. They also consist of entertainment, hobbies and clothing.
Add up your fixed and variable expenses from the last month, then subtract them from your monthly income. If you get a positive number, you are making ends meet and have a surplus. You might use the extra funds to pay off debt or build an emergency fund. Negative numbers represent a deficit and could be a signal to rework your budget.
Look for ways to reduce your variable expenses, such as eating out less or reducing your vehicle usage. Another tip: “Take advantage of discounts offered to seniors,” says Bruce Tannahill, a director of estate and business planning with MassMutual in Wichita, Kansas. “Many businesses offer discounts of 10% or more.”
Delaying Major Expenses
If you were planning to take an extended vacation but haven’t paid for it yet, you could postpone the trip. The same is true for luxury purchases like a new boat or a house remodeling project. If it’s hard to make it from month to month, you might put these funds toward day-to-day living. Perhaps in a couple of years, you’ll have a chance to work splurges into your budget again.
Drawing on Cash
For those with access to cash, it may be time to spend those funds rather than sell off stocks or make extra withdrawals from retirement accounts. This could help you avoid going into debt with credit cards. When using cash to cover expenses, pay attention to every expense. Stretching dollars during an inflationary period could help you get through this uncertain time.
The Logistics of Relocating
If you own your home and have paid off the mortgage or are close to paying it off, you have accumulated equity in the property. In areas where housing prices are on the rise, you might be able to sell your home and move to an area that is less expensive. Research cities that are known for being affordable places to retire, and think about your lifestyle in a new place. A few to consider: Daytona Beach, Florida; Knoxville, Tennessee; Scranton, Pennsylvania; and Grand Rapids, Michigan.
The Impact of Downsizing
For retirees who want to remain in the same town, a smaller home might help reduce expenses. Look for neighborhoods that cater to retirees or condo communities that are close to supermarkets and services. You could sell your current residence and some of the furniture that won’t fit in the new place. Use the proceeds to help cover current expenses, or set funds aside for the future in case inflation continues.
[Read: How to Save for Retirement.]
Your Portfolio’s Condition
You may have invested funds in different accounts and products during your working years. Now that you’re living off your nest egg, it can be helpful to see how your funds are diversified. If possible, “own a well-balanced portfolio to keep assets growing during this inflationary time,” says David Orsolino, a certified financial planner at Strategies for Wealth in New York City.
Evaluate your risk tolerance to make sure you are comfortable with the allocations. Consider asking about distribution strategies to see if there are options to potentially access more funds without hurting your long-term plans.
It can be hard to know how long inflationary periods last. While some experts have made estimates, history tells us that inflation ebbs and flows over time. By taking measures now, you’ll be able to continue living off your fixed income and be prepared for the coming years.
More from U.S. News
Update 05/18/23: This story was published at an earlier date and has been updated with new information.