How to Diminish the Pain of Inflation

Inflation is high now because of the unprecedented combination of stimulus resulting from the pandemic, the supply chain fiascos and inconsistencies in COVID policies across the globe, and the ongoing war; we should anticipate that inflation may take time to return to normal. Everyone is affected by inflation, but retirees and those nearing retirement are affected differently than people with many years left to ride out a volatile market.

With inflation, people’s money preferences change as well. The more you save and invest for the future, the more likely you will delay gratification.

Alternatively, if you expect inflation to rise, you will probably spend your money more today, possibly because you fear it will be worth less in the future. In light of this, it may be well worth considering making common-sense changes to your personal financial planning approach, ranging from your home financing to the kind of car you purchase to your food shopping habits.

As of May 2024, Social Security increased the cost of living by 5.9%, while inflation rose by 8.6%. Because Social Security provides the only income for most retirees, so when a cost of living increase falls behind inflation, they are disproportionately affected. Despite inflation’s negative impact on retirees, it’s not all bad news.

For retirees, spending patterns change as they age, and they tend to spend less in inflation-sensitive categories. Because retirees are no longer commuting to work, they may purchase less gasoline than they used to. Some study suggests that retirees spend less in all categories other than healthcare and charitable contributions.

The majority of retirees own their homes outright or have small mortgages, reducing their housing costs. In general, retirees aren’t feeding as many people as they were earlier in their lives, so they may be able to control their food costs during retirement better.

The bad news, the cost-of-living adjustment to Social Security does not always keep up with inflation. Spending on healthcare and long-term care may also increase at a higher rate, so plan accordingly.

Preventive measures to protect your retirement savings include preparing and maintaining non-perishable food supplies and other essentials for situations where stores cannot replenish them. As a result, the non-perishable goods are locked in at the current price and represent a high-interest rate saving because goods are likely to rise much faster than interest rates.

It is likely that if you purchase a durable item, such as a washer and dryer, you will not need to replace them or service them anytime soon. Even though the purchase price might be higher, the investment could make your expenditures more manageable over time.

Prepare a budget emphasizing expenses such as transportation, food, utilities, education, and healthcare that might be affected by inflation in the future. You can stretch your budget further by shopping at less expensive stores or bulk stores, like Sam’s Club. Decide which expenses can be cut or reduced without affecting your quality of life. You might still feel the pinch of inflation, but the pain will be less.