August 4, 2022
  • August 4, 2022

“Inflation is the silent killer”, as many retirees feel the sting

By on July 4, 2021 0

Jeffrey Coolidge | Getty Images

Rising inflation is a concern for Kevin Linehan, 68, a retiree from Fitchburg, Massachusetts.

After a heart attack at the age of 44, Linehan left his career in the postal service prematurely, opting for reduced disability retirement income.

“It wasn’t the best financial thing to do,” he said. “But at the time, it seemed like my life was more important than work.”

Although it was difficult to survive on a “meager income,” Linehan, an Air Force veteran, secured government subsidized housing through Veterans Affairs for less than $ 500 a month. Rent remains relatively stable from year to year, with annual increases based on income.

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In recent months, however, Linehan has noticed a surge in the prices of basic necessities like food and gasoline. He found higher costs for staple foods like bread and milk. There have also been regular increases in gasoline prices, limiting its ability to travel.

“It’s like now that we are recovering [the pandemic] everyone is raising prices, ”he said.

The increase in food costs has been particularly troubling for Linehan, who receives monthly benefits from the Supplemental Nutrition Assistance Program, known as SNAP. As SNAP benefits have increased during the pandemic, it expects them to drop back to $ 16 per month once the state’s Covid-19 relief runs out.

“I don’t know how much longer, [the extra benefits] are going to last, but it has helped me tremendously, “he said.

The May Consumer Price Index, measuring the cost of food, shelter, gasoline, utilities and other goods, jumped 5% from the previous year, according to the Department of Labor. Food prices have risen 2.2% in the past 12 months and gasoline has swelled 56.2%, recovering from pandemic lows.

While Federal Reserve officials have said these price increases are transient, retirees like Linehan are still worried about rising prices.

Inflation is the silent killer.

Brad Lineberger

President of Seaside Wealth Management

Americans’ expectations for inflation for the coming year hit 4% in May, the seventh consecutive monthly increase, according to a report by the Federal Reserve Bank of New York.

“Inflation is the silent killer,” said certified financial planner Brad Lineberger, president of Seaside Wealth Management in Carlsbad, California. “It can erode purchasing power to the point where someone wakes up and can’t live the lifestyle they once had because they can’t afford it.”

Not a problem for all retirees

While the price hike has alarmed many retirees, others are not feeling the effects.

“Our clients have not been greatly affected by the temporary inflation surges,” said Jon Ulin, CFP and CEO of Ulin & Co. Wealth Management in Boca Raton, Florida.

Diane Benson, 69, and Al Sapienza, 70, in Seattle are among those retirees who haven’t felt the inflation sting. After selling their home in suburban Boston, the couple moved to Seattle in 2019, eager to live near their 40-year-old son David.

Sapienza retired early from his 25-year job at the Social Security Administration, moving on to higher education before leaving full-time work in 2015.

Al Sapienza and Diane Benson.

Source: Diane Benson

Benson quit her career in social work in 2007, choosing to spend more time with her ailing mother. Her loss of income was not a problem, she said.

“We never really extended beyond what we could afford,” said Sapienza. “In fact, we probably lived far below.”

Although they noticed the rising prices, inflation did not impact their finances “in any way,” he said.

Cost of living adjustments

Inflation can be difficult for those living on a fixed income. However, Benson and Sapienza both receive pension and Social Security payments, and both with cost-of-living adjustments, Sapienza said.

While Social Security payment changes have historically been modest, creeping prices have pushed up estimates of the 2022 Social Security cost of living adjustment to 5.3%, the largest increase since 2009, according to the Senior Citizens League.

“This year people will see prices increase and their benefits will not immediately increase to compensate, but they will increase in 2022,” said Alicia Munnell, director of the Center for Retirement Research at Boston College.

Benson and Sapienza also have untapped retirement accounts, with plans to wait until age 72 to start withdrawing funds.

The so-called three-legged stool of retirement income – pension, retirement accounts and Social Security – has become less common among retirees. According to the National Institute on Retirement Security, only 6.8% of older Americans receive income from these three sources.

How to fight inflation

While some retirees may worry about soaring prices, there are ways to minimize the effects, said Jeffrey Tomaneng, CFP and wealth advisor at Asset Management Resources in Hyannis, Massachusetts.

For example, it encourages clients to review their portfolios, with the option to shift a percentage to more aggressive assets, he said.

Some clients’ parents are now 90 years old and running out of savings. But a little more portfolio risk 20 or 30 years ago would have improved their situation today, Tomaneng added.

“We like to remind clients that they can’t get too conservative in their asset allocation too early because they need stocks to fight inflation,” Lineberger said.

Decrease spending

Kevin P. Linehan

Courtesy of: Kevin P. Linehan.

Inflation can be painful for retirees without a nest egg, but there may be creative ways to offset the effects. They may consider relocating or exploring community living situations with family or friends, Tomaneng said.

However, those looking to downsize and buy elsewhere may prefer to wait, depending on the market, Ulin said.

The influx of transplants and the limited number of properties have caused a 10-20% increase in housing in South Florida, for example.

Of course, not everyone has the resources or the desire to move away from their family.

After many years spent in low cost areas, Linehan returned to Massachusetts after the death of his wife. He now lives near his sons and four grandchildren, relieved that his family is nearby in case of an emergency.

Despite rising prices and cuts to SNAP benefits, he is confident that he will be successful.

“I’m doing well for someone who doesn’t have a lot of income each month,” he said.