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How Rising Costs Will Affect Retirees

Inflation is at the highest rate in 40 years. Millennials born after 1990 are experiencing rapid inflation for the very first time. At the other end of the age scale, Boomers are feeling the pinch in retirement. And savers preparing for retirement are anxious about how their retirement strategies will hold up against the prediction that inflation will continue for the next 15 years.

The Fidelity 2022 State of Retirement Planning report also found that 21 percent of younger savers, meaning those aged 18 to 35, cashed out their 401(k)s last year when they quit their job. 45 percent of those younger people say there’s no point saving for retirement until “things get back to normal.”  However, what they’ve known as “normal” is not likely to happen any time soon.

You probably don’t need an expert to tell you that prices are rising rapidly.  Government numbers put these increases at a double-digit rise in the past year in meat, poultry, fish, eggs and milk, fresh fruit and vegetables, and things like cars and major household appliances. Gasoline prices have risen nearly 40 percent.

“No matter where you are on the age scale, inflation will play a big part in planning and managing your finances,” says Robert Cavanaugh, Senior Vice President, Investments for David Lerner Associates. “Retirees on a fixed income can be seriously affected by rent hikes and food increases that cut a deep hole in their quality of life.”

A case in point is Martha. She is 74 and lives on Social Security and has a small investment income.  Her rent has gone up from $900 to $1300 in the last year. That's almost 40 percent! Her grocery bill has increased by 35 percent.  She has had to go back to work part-time to supplement her income to maintain her standard of living. Tragically, she’s not alone.

In the past two years, the pandemic saw millions of older workers leaving their jobs. Some made the decision to quit, while others were let go. Now they’re being forced to go back to work. In the past three months, about 625,000 people went back to work after saying they had retired. According to AARP, financial need is the most likely reason for retirees to re-renter the workforce.

Even if you have been diligent and saved since you were in your twenties, this kind of inflation could put a severe dent in your retirement plans. Speak with your financial advisor and see how your retirement plan will protect you against inflation.

 

 

IMPORTANT DISCLOSURES

 

Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual's personal circumstances.

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