For the past several months, there’s one word that seems to have dominated the U.S. financial headlines: inflation. Over the past decade, the specter of inflation had almost seemed to have disappeared, with the annual rate generally fluctuating in the 1.5 to 2.5 percent range. But those controlled rates seem like a thing of the past, with inflation rates for 2022 now calculated at 6-7 percent and even higher. If the annual rate continues to average, say, 4 percent, it would take almost $1,500 a decade from now to match the spending power of $1,000 today.
Numbers like that have a growing number of retirees worried about the health of their retirement income. We recently read this article on the Money magazine website in which reporter Mallika Mitra takes a look at some recent survey data showing just how frightened older Americans are about their financial futures. As we read this report, we couldn’t help thinking – as Rajiv so often advocates – that the current inflationary situation is a perfect reminder of the urgent need for a financial dashboard. More about that in a moment.
Seniors Fear Their Money Will Run Dry
“Current sky-high inflation rates have older Americans afraid their money won’t last as long as their retirement,” warns the Money article. Reporter Mallika Mitra quotes a December 2021 survey by the American Advisors Group (AAG) showing that just over a third (36 percent) of people between the ages of 60 and 75 say they have less money than they thought they would at this point in their lives. Almost three in ten believe they will outlive their retirement funds.
“The 1,580 survey respondents reported feeling especially concerned about their post-career finances amid rising prices,” said the article, “with 66 percent saying they’re worried inflation will negatively impact their retirement.” As Martin Lenoir of AAG said in a news release, “Many seniors in this country are discovering that their retirement plans aren’t working out as they had hoped, and inflation is only making that reality worse.”
Retirement Crisis is Getting Worse
The Money article strikes an ominous note for those approaching retirement. “The country’s retirement crisis is ballooning,” it says, “with health care costs rising, safety nets like Social Security facing uncertain futures and people generally living longer than ever. Now, prices are increasing for everything from groceries to cars to rent.” According to the Money report, overall inflation is at a 40-year high, with consumer prices surging 7.5 percent in January compared to the same period in 2021.
This is worrisome indeed for those on a fixed income, as well as those trying to minimize investment risk as they age. “It makes sense that those in or nearing retirement would be particularly anxious about their finances, especially as more than half of the survey respondents indicated that the cost of living is higher than they expected,” Money reports.
According to recent data from the Bureau of Labor Statistics, the average household spending for Americans age 65 and older is $48,106 per year, roughly 14 percent of which ($6,719) goes to health care. But a significant number of seniors say they don’t have enough. “Older people are also requiring more money than they have for their retirements,” says the article. “The survey found that 37 percent of older Americans say they need to increase their monthly cashflow in order to live comfortably.”
Financial Advisors Suggest Ways to Fight Inflation
The Money article includes some anti-inflation advice that seems a bit familiar to us – and may not be of much help for those already close to retiring. Obviously, the article acknowledges, every retiree is different: an income that might seem barely adequate for one household can be more than ample for another. In the same way, lifestyle preferences – and the income required to sustain those lifestyles – will vary widely.
“If you want to have a lifestyle in your retirement that looks like the one you have during your career,” the article recommends, “Fidelity suggests trying to save 10 times your income by the time you’re 67. That means saving one year’s salary by the time you’re 30, three times your salary by age 40, six times your salary by age 50 and eight times your salary by age 60.” Money also gives the usual advice about proper portfolio diversification and other age-appropriate suggestions about investing. And, the article concludes, retirees need to budget for higher costs and keep enough liquid savings on hand for unplanned expenses.
Rajiv Says, “There’s a Better Way”
As you might expect, Rajiv Nagaich of AgingOptions takes a more proactive approach. “Inflation is definitely something you need to plan for,” he says, “but it’s not a reason to panic.” For one thing, prices don’t all rise at the same rate. “People get worried about rising prices,” Rajiv explains, “but the way the government calculates inflation means prices on some goods – like new cars, for example – can shoot way up while other prices don’t change so much. Retirees can often do a pretty good job of fighting inflation by spending more wisely.”
(This January 2022 article from Money bears out what Rajiv is saying. Even as some costs continue to soar, says the article, the prices you pay for other goods like meat and gasoline seem to be easing a bit. Calculating the inflation rate is definitely a moving target.)
The main point Rajiv emphasizes, however, will sound familiar to readers and radio listeners. “This article reminds me once again that people truly need a financial dashboard,” he says. “That way, you’re in control. You can plug in your savings rates and your rate of return on investments. You can plug in the costs of your taxes. You can see at a glance what the impact of various rates of inflation will be, and you can make the necessary adjustments way ahead of time.”
The bottom line, says Rajiv? “What is it we all want? True financial peace of mind – to avoid running out of money and becoming a burden to our loved ones. A financial dashboard is the surest way to feel more secure and less fearful about your financial future.” If you’ll contact us at AgingOptions, we’ll gladly explain more about the power of a financial dashboard and refer you to a qualified professional who will work with you to create one.
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(originally reported at https://money.com)