Why is this year different from all other years for seniors? Inflation. The latest numbers show a whopping inflation rate, the highest since 1982. That means everything you buy is going to be more expensive. You see these effects at the gas pump, at the grocery store, at the doctor’s, and frankly, everywhere. The problem is that you have no choice Not to buy certain things.
It’s interesting because we kind of have a love-hate relationship with our financial world. We think it’s great that the economy is back in full swing with full employment and that almost anyone can get a job if they want one. We also love that wages are going up and that we’re getting back in the car eating out and traveling. But at the same time, we hate that this growth breeds inflation, which causes the cost of everything to go up. We can also support the Ukrainians in their war with Russia, but we hate the cost to us.
Why are seniors more affected by inflation?
There are several reasons why inflation is harder on seniors than others. Let’s start with the fact that most seniors live on a fixed income. Inflation is not an abstract idea… it is real. The income you receive can come from many sources, including Social Security. It should be noted that a cost of living adjustment (COLA) is built into Social Security. In fact, there was a 5.9% increase this year. That means the average Social Security benefit will increase to $1,657 per month in 2022, up $92. That sounds great, but the annualized inflation rate over the trailing 12 months is 8.6%, the Bureau of Labor Statistics reported June 10. That more than negates the increase in Social Security benefits.
Seniors with conservative portfolios are also seeing their savings and investments take a hit. It is advisable to invest conservatively as you get older as you should not take big risks. But those conservatively lower yields also mean that inflation will hit you harder because you’ll have to spend less on goods and services that are rising in price.
But let’s face it: as seniors, you “were there and did that.” You’ve gotten through hard times before, and you can do it again.
To help you with that, here are some tips to reduce the impact inflation that’s being deducted from your income.
Tip #1: Be smart about when to file for Social Security
If you can, delay applying for Social Security. Up until age 70, you can increase your benefits by 8% for each year you wait to retire. Claiming your Social Security at 62 can mean a 30% reduction in your benefits. If your full retirement age is 66, you will receive 100% of your monthly benefit if you start claiming at that point. If you defer until you are 70, you will receive 132% of your monthly benefit. One way to help you in your efforts to delay filing claims is obvious but worth mentioning: work longer hours. Working longer increases your Social Security benefits in many ways.
Tip #2: Get creative with your spending
There are only two ways to truly ease the burden: earn more or spend less. Earning more might not be an option, but you can always figure out how to spend less.
It’s time to look at your budget. Go through your current expenses line by line. Really decide if each article is a want or a to need. You need to know your expenses and you need to really examine them. You obviously pay a fixed amount for rent or a mortgage, for example. But you also have a lot of discretionary spending. Things like:
Eating out at work: No matter where you go, eating out will cost more. Even if you only spend, say, $10 a day five days a week, that’s $2,600 a year. Find out how much you spend and vice versa what it would cost to buy groceries and cook at home.
Coffee: You hear about drinking your own coffee and it doesn’t seem like a big deal. But you can easily spend $70 a month, which adds up to $840 a year.
Subscriptions: Many subscriptions are automatically paid for. Check out these subscriptions and see if you use them (or even want them).
Buying brands: Try switching to generic drugs. It will save you a lot of money.
Tip #3: Enjoy life, because it could be long!
Plan smart by Not Go bankrupt. Count on living longer than you may have thought. In the US, the average life expectancy for women is 81 years and for men 77 years. You don’t want to outlive your money, so be conservative when planning by aligning your investments and spending with your lifespan. And plan to live long!
Tip #4: Don’t overdo it with your portfolio
Stay away from the sexy stock portfolio hoping to pick the best winner. You should have a conservative portfolio that will maintain your financial independence in retirement. Leave the sexy to your younger kids.
Consider dividend stocks and growth stocks instead, and make sure you have enough cash on hand when you need cash. Throw some bonds into the mix. Annuities can provide some inflation protection, but that depends on the type and when you bought them. Think of them as retirement savings. You pay the premium and get a fixed monthly income back at the end of the term. I’m not a fan of investing in gold, but it does help some people sleep at night. It keeps me awake because it’s hard to liquidate.
Tip No. 5 Tip: Shop smart
Form a group with neighbors to go to the store together (save gas) to buy in bulk (save money). Make sure you have a list of what you need before you get there and items, like paper products, that are easy to share.
Prepare and freeze extra meals. Meat prices are high, so consider buying cheaper cuts and making stews and chillies that are just as healthy as filet mignon.
Tip No. 6 Tip: Mobilize the kids
Check all your subscriptions. This can be hardcover magazines and newspapers. Subscriptions to online services like Amazon Prime can also sneak in. Your children can check all this with you. You can also check your phone and computer service plans and find out how they can be bundled or reduced when not in use.
Tip No. 7: Rent a room
You might consider taking on a friend as a roommate to share expenses, or even listing your place on Airbnb for rent if you’re away for a while. Or you might rent out your house and move in with a friend for a period of time, especially if you live in a desirable vacation spot. Your kids might be thrilled to have a babysitter for a while if you rent out your home.
Tip #8: Go potluck
Instead of going to expensive restaurants with friends, host potluck dinners where everyone brings a dish. It will save a lot of money, and the real point is to hang out with friends.
Tightening one’s belt can mitigate the effects of inflation and doesn’t have to look like punishment; it can seem like a challenge. You can find ways to beat inflation as a family and with your friends. Try it.
President and CEO, Children’s Financial Network Inc.
Neale Godfrey is a New York Times #1 bestselling author of 27 books empowering families (and their children and grandchildren) to take charge of their financial lives. Godfrey began her journey at The Chase Manhattan Bank, where she was one of the first women executives to join, and later became President of The First Women’s Bank and Founder of The First Children’s Bank. Neale pioneered the topic of “kids and money,” which really took off after her 13 appearances on The Oprah Winfrey Show. www.nealegodfrey.com