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How Inflation Impacts Retirement Income

How Inflation Impacts Retirement Income

January 23, 2023
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Many people notice the effects of inflation on their grocery bill or at the gas station when a full tank costs more than they remember. But inflation affects other areas of your finances, including your long-term financial goals like retirement income.

One of the main reasons why our office is always mindful of inflation (even before it more recently became a topic of discussion as of late) is because it can have an impact on areas of your financial picture. Rest assured; we’ve been planning with inflation in mind. Here’s why:

Social Security as an Income Source

A majority of retirees depend on Social Security, at least in part, for their retirement income. While Social Security benefits are evaluated against price indexes every year, there is some evidence that the cost-of-living adjustments to Social Security benefits have been inadequate. Even though Social Security benefits are regularly evaluated, inflation may still outpace them, so we plan accordingly.

Pensions as an Income Source

If you have a pension plan, it’s likely tied to your last salary rates, so your benefits may be based on a salary that does not reflect the current market rate. Also, while pension plans sponsored by state or local governments provide some cost-of-living adjustments, private pension plans often do not. It’s likely that your pension plan is based on outdated numbers that don’t take inflation into account. We consider that in your retirement budgeting.

Prior Savings as an Income Source

As inflation decreases the worth of a dollar, you may be at risk for the worth of your non-yield-producing assets to decrease as well. Due to inflation, the funds you have saved may not be worth as much as they once were. Making a retirement budget is essential to mitigating the negative impacts of inflation.

What You Can Do to Curb Inflation’s Impact

Unfortunately, no one can individually impact the inflation rate, but there are actions you can take that may help minimize the impact it has on your retirement income. Many people consider these options when looking for ways to decrease inflation’s impact:

  • Reducing housing costs
  • Diversifying income streams
  • Adding correlated investments to their portfolios

Inflation doesn’t mean the end of a comfortable retirement for those who’ve planned. It’s like any other major life stage transition we’ve helped clients make; it may take some adjustment. Even if your financial plan isn’t quite what you had in mind, we’ve planned for ups and downs and there’s confidence in that.

As always, contact the office if you’d like to talk about this in more detail.

This material was developed and prepared by a third party for use by your Registered Representative. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security. The content is developed from sources believed to be providing accurate information. 

All investing involves risk, including the possible loss of principal. The return and principal value of stocks fluctuate with changes in market conditions. Shares when sold may be worth more or less than their original cost. There is no assurance that any investment strategy will be successful.