MAINTAINING A HIGH LIVING STANDARD DURING UNAVOIDABLE PRICE INCREASES
Table of Contents 3 Annual Income Required to Equivalent $100,000 Today In... 4 Inflation Impact on Retirement Spending 5 What Retirees Can Do to Reduce the Negative Effects of Inflation
www.bedrockfs.com | [email protected] | 800-779-4182 3 BFS2022IR3E Annual Income Required to Equivalent $100,000 Today In... 5.39% Inflation Rate from September 2020September 2021 2.1% Average Social Security COI Adjustment 2000-2020 1 Number of years without a rise in inflation in the last 50 years INFLATION RATE 10 YEARS 20 YEARS 30 YEARS 3% $134,392 $180,612 $242,726 4% $148,024 $219,112 $324,340 5% $162,890 $265,330 $432,194 Most pre-retirees and their advisors budget for a 3% inflation risk. If price increases keep going at the current rate, 3% will simply not suffice. Economists are still debating how this inflationary environment will develop, and some highly qualified ones believe the inflation rate might exceed 4% and reach 7% over the next several years. The chances of this happening are still low, but if you want a peaceful retirement, it’s better to start preparing now. 800-779-4182
www.bedrockfs.com | [email protected] | 800-779-4182 4 BFS2022IR3E Inflation Impact on Retirement Spending The biggest issue for retirees is the impact of inflation on their purchasing power. Even if inflation is low, retirees continue to spend money even if their income has been reduced or has stopped. The Center for Retirement Research at Boston College discovered that retirees consume less than those who are not retired, albeit this is highly dependent on their income and health. Fortunately for retirees, inflation generally affects healthcare costs less than other expenditure categories. For example, the cost of medical care services grew by 4.0% between May 2021 and May 2022. On the other hand, total health spending in the United States has been rising. Healthcare spending increased by 9.7% between 2019 and 2020, more than double the previous year. Retirees in good health with more free time may want to travel more. Unfortunately, between May 2021 and May 2022, airfares rose 37.8%, while fuel prices rose nearly 49%. Even if the retiree does not directly pay for the item, they may be subject to pass through charges (i.e., higher cruise prices due to higher operating costs). Retirees frequently face the dilemma of whether to sell their property and enjoy the freedom of becoming renters again or maintaining their homes. Keep rising rent prices in mind if you decide to sell your home. Rent expenditures in the United States climbed 5.1% in May 2022. Rent may be a new, increasing expenditure for retirees.
www.bedrockfs.com | [email protected] | 800-779-4182 5 BFS2022IR3E What Retirees Can Do to Reduce the Negative Effects of Inflation Protect against inflation and give yourself peace of mind by integrating a source of rising income with market performance and endurance qualities. While seniors cannot directly influence the inflation rate, there are strategies to reduce its impact on retirement. Lower your housing costs. Even if the mortgage is paid off, trading a larger house for a smaller one decreases the monthly expenditure for property taxes, utilities, homeowners insurance, and repairs. In addition, retirees concerned about future inflation may want to avoid shifting from owner to renter. Incorporate inflation-linked assets into your portfolio. Rent charges tend to climb in lockstep with inflation; thus, real estate investment trusts (REITs) or energy sector equities, for example, may be better positioned to have their value rise with inflation. Diversify income streams. Some income streams will naturally rise due to inflation, while others will remain static. Therefore, retirees would be wise to acquire income sources related to cost of living adjustments. Moving away from fixedincome sources is part of this. Without effective inflation planning, clients will be forced to pick between: 1. Depletion of the portfolio and reduction in net-to-heirs 2. Return to work 3. Lower standard of life
www.bedrockfs.com | [email protected] | 800-779-4182 6 BFS2022IR3E Ask a licensed financial professional about your individual situation. The information above is general and not a recommendation to buy or sell any security or insurance product. This cannot be considered investment, tax, or legal advice, nor is any offer being made to buy or sell any security or specific insurance product. Always consult your tax preparer for tax advice. Determine your retirement needs as soon as possible. When you add inflation to what you’ll need to take into account, it’s easier to plan and prepare for when to quit working and what kind of lifestyle you’ll be able to afford when price hikes are considered. Remember that you should balance stock investments with more conservative choices, such as bonds, which are more predictable and likely to deliver consistent returns. However, if retirees are concerned that inflation may deplete their savings, they may be motivated to invest in riskier asset types. If this is your situation, seek the advice of a financial counselor on portfolio allocation. 800-779-4182
www.bedrockfs.com | [email protected] | 800-779-4182 7 BFS2022IR3E Sources: https://www.nytimes.com/2021/06/04/business/inflation-stock-market-bonds.html https://www.investopedia.com/articles/retirement/052616/how-inflation-eats-awayyour-retirement.asp#toc-what-retirees-can-do-to-curb-inflations-side-effects
www.bedrockfs.com | [email protected] | 800-779-4182 8 BFS2022IR3E Bedrock Financial Services [email protected] www.bedrockfs.com 800-779-4182
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