"Inflation Puts More Retirees at Risk of Running Out of Money" - Anne Tergesen

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Since 2021, spending has been on the rise, close to an all time high, steadily fueling a consumerist world. Because the demand for products is higher, the price of products thereby increases, and when prices increase, the value of cash decreases. The same is true for fixed-income investments which too have been losing value. This is an issue for individuals nearing retirement as their cash and investments set aside have lost much of their value. 

According to the Labor Department, Inflation rates currently rest at 2% above the Federal Reserve’s annual target. This April, it was measured to be 3.4% higher compared to April 2023. This means that the price of goods and services are becoming increasingly inaccessible to the deprecated value of cash. 

Secondly, Boston College predicted that inflation will cause a 14.2% decrease in wealth for middle-income retirees from 2021-2025, further demonstrating how much of an issue inflation is for this group of people. On the other hand, the higher-income retirees will experience a 4.3% reduction, while the lower-income will endure a 18.8% decrease. 

Retirees' income will also be impacted by the inflation rates. Although social security increases in order to balance the higher cost of living, there is no similar adjustment for pension income in the private sector, therefore making it harder for retirees to have a stable cash influx. 

The reduction of cash value and its worrying effects for older adults is also impacting their spending behavior. In a group survey from Quinby of 1,501 near retirees, due to inflation, 39% saved less money and approximately one fourth used more cash from their savings meaning that their savings balance will be declining, contributing to more of a sense of financial insecurity. Although retirees could balance these habits by working more and increasing their cash influx, 96% of the surveyors say they would not be willing to continue working post-retirement.

The correlation of increasing inflation and decreasing wealth for retirees is a major concern. The best solution to avoid the struggle of inflation is to account for it whilst formulating a financial plan. 

By considering the harmful effects of inflation on the cost of everyday expenses as well as things like pensions, a retiree will be able to avoid this harm by allocating more money to their savings in order to counteract the high prices. For example, if an older adult makes it a goal to buy a new TV in their retirement, they should predict the price of the TV when they plan to buy it based on the forecasted inflation rates. By saving for this sum of money, they then would be able to afford the TV for when they want to purchase it.

If near-retirees begin to account for the higher prices of the future in their financial plan, they will be able to achieve their life goals more easily without reaching financial instability.

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Works Cited

Tergesen, Anne. “Inflation Puts More Retirees at Risk of Running Out of Money.” The Wall Street Journal, Dow Jones & Company, 15 May 2024, www.wsj.com/personal-finance/retirement/inflation-retirement-savings-withdrawals-b73caa41. Accessed 31 Aug. 2024.