Rising prices can be tough for anyone who relies on a set income in retirement. Inflation hit 7.9% in February 2022, a 40-year high. The rising prices for gasoline, shelter and food are contributing the most to the increase. “This is extremely detrimental to most retirees whose income is at least partially fixed,” says Doug Carey, owner of WealthTrace, a financial and retirement planning software company in Zionsville, Indiana. “I have found that a retiree with a $40,000 per year pension will lose 25% of the value of that pension in real dollar terms in just three years at today’s inflation rate.”
The Consumer Price Index tracks inflation and measures the increase in prices for goods and services. The high inflation rate signals that overall costs for Americans have gone up by 7.9% compared to this time a year ago. The CPI is divided into categories, and some goods and services have higher rates of inflation than others. “It’s important to understand the root causes of rising prices so that we can find solutions,” says Samantha Hawrylack, founder of How to FIRE, a personal finance blog.
Inflation can occur due to factors including the rising costs of production, supply chain issues, an uptick in money that is circulating and the devaluation of a currency. During the past several decades, inflation has typically been low, such as 3 or 4% year over year, but there have been several points in time when it was high. “There can be a number of reasons why prices may suddenly or drastically increase,” Hawrylack says. These often consist of natural disasters, war and government policies. “When these factors occur, it can have a ripple effect on the cost of goods and services,” Hawrylack says.
The costs that are straining retirement budgets include:
- Medical expenses.
- Gas prices.
- Housing costs.
- Higher utilities.
Here is a breakdown of items that have gone up in price and could impact retirees who depend on Social Security, a pension, retirement account withdrawals and other fixed sources of income to cover the cost of living.
Food prices are expected to go up between 2.5 and 3.5% in 2022, according to the Food Price Outlook for 2022 issued by the U.S. Department of Agriculture. If you shop at the same supermarket every week, you may have noticed beef prices on the rise. In January 2022, beef prices were 43.9% higher than beef prices in January 2021.
Evaluating the price tags on the shelves of …….