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Don’t Let Inflation Stress You Out During Retirement

July 20, 2022 recently reported, “According to a 2020 survey from Allianz, nearly half of Americans are worried that rising prices in retirement will cause basic expenses to be unaffordable once they stop working. 

But there’s an interesting wrinkle to that Allianz survey: Actual retirees were much more optimistic about inflation than those still a ways off. For instance, two-thirds of pre-retirees thought inflation would imperil their quality of life, compared to just 40% of actual retirees.”1

Why aren’t retirees worried? This group may have a well-kept secret. An average 65 million Americans receive a Social Security check each month with an average monthly benefit of $1,658. That payment averages almost $19,900 per person annually and, if stats hold true, represents one-third to one-half of each person’s retirement income.

Here’s the secret: Those checks adjust for inflation!

Beyond Social Security benefits, retirees tend to have a diversified portfolio growing their nest egg. According to Boston College Center for Retirement Research, income sources are allocated as such: 60% Social Security, 17% Pension/401(k), 12% Primary Residence, and 5% Savings/Tax-advantaged Accounts. Historically, many of these investments use a Vanguard report as a proxy to funnel their money into balanced strategies using stocks and bonds to minimize risk and maximize gains.

The secret here: These investments tend to outperform inflation over time!

After considering your income and nest egg, it’s worth looking at what retired lifestyles tend to look like. Michael Kitces, Certified Financial Planner, talks about the “end-of-history illusion,” which demonstrates that typically people imagine their retirement life based on their current “likes.” Still, when they retire, they change things up. Some retirees find themselves with less saved than they intended, and others don’t like seeing their nest egg balances go down—either way, they make changes centered on people rather than things.

One more secret: Retirees are spending less than they anticipated!

With these perspectives in mind, it’s worth noting that a rise in inflation will impact your savings—the time between now and your retirement date determines if there’s time for correction. The average inflation rate in the US from 1961 to 2020 was 3.3%. Since the Pandemic of 2019, that number has exceeded 8%, thanks partly to supply chain issues and consumer demand.2 When making retirement plans, this jump in inflation rates may significantly impact your portfolio today and your retirement tomorrow. If you’re feeling anxious, maybe it’s time to reevaluate your financial plan.

Adapted from ForbesAdvisor1

Adapted from Kiplinger.com2


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This document is for educational purposes only and should not be construed as legal or tax advice. One should consult a legal or tax professional regarding their own personal situation. Any comments regarding safe and secure investments and guaranteed income streams refer only to fixed insurance products offered by an insurance company. They do not refer in any way to securities or investment advisory products. Insurance policy applications are vetted through an underwriting process set forth by the issuing insurance company. Some applications may not be accepted based upon adverse underwriting results. Death benefit payouts are based upon the claims-paying ability of the issuing insurance company. The firm providing this document is not affiliated with the Social Security Administration or any other government entity.