No protection from inflation can create a dire situation for retirees
Inflation creeps into many aspects of retiree spending, including grocery bills, gas and medical equipment – it can also hurt their retirement income too, even if they’re lucky enough to have a pension.
All pensions are not created equally. Many private pensions do not adjust for inflation, which means that as inflation rises, retirees’ payouts remain the same. Some public pensions, such as those issued by local and state governments, do have a cost-of-living adjustment, but they may barely keep up with inflation, thus reducing spending power for retirees.
Try the “Rule of 72” to calculate how inflation might affect retirees, said Thomas Blackburn, a Certified Financial Planner at Mason & Associates. This tool roughly estimates how long it will take something to double in value. For example, if an item costs $100 today and inflation is 2%, it will take 36 years for the item to double in price to $200 . If inflation was 7%, it would take about 10 years to double.
Of course, the stock market is also a stressful place for retirees these days. The market has been volatile, and trending downward, in response to global tensions among Russia and Ukraine. Investors in or near retirement shouldn’t be too heavily exposed to equities unless they can afford it, as it could otherwise take years to rebuild those investment losses.
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