Fewer hot showers, less meat: How retirees on fixed incomes are dealing with inflation (2024)

FAQs

Fewer hot showers, less meat: How retirees on fixed incomes are dealing with inflation? ›

Fewer hot showers, less meat: How retirees on fixed incomes are dealing with inflation. Rising prices are squeezing older Americans. Leslie Morgan is doing everything she can to save money: She quit smoking, cut back on groceries and is rationing hot showers so she can keep her water heater off for days at a time.

In summary, most older households lose real consumption and wealth after an inflation shock. The magnitude of the loss depends on the nature of the shock, the real growth of income and assets, and the household's exposure to fixed-rate debt.

The value of certain fixed-income investments drops. The rate of return on government-issued securities drops as inflation increases. And more people may decide to sell them when returns drop, which decreases their value.

By investing in gold, for example, seniors can better hedge against inflation and diversify their portfolios. Reverse mortgages, meantime, offer an alternative income source with less baggage than other home equity borrowing options do.

Reducing your cost of living can be one of the most strategic money moves when you're on a fixed income. This might look like staying in your area but moving to a home with a lower cost to maintain, like trading in the big house with high utility bills or property taxes for a more affordable, lower-maintenance home.

How many of those were retired and returned to work isn't clear, but survey data suggests it was a lot. One in eight people who are retired plan to go back to work in 2024, according to a recent ResumeBuilder.com survey. High costs, inflation, insufficient savings and boredom were cited as reasons.

Inflationary monetary shocks do the opposite: They hurt the most affluent more than the least affluent. This discrepancy is largely driven by the different response of asset prices: Monetary policy raises home and stock prices, which hurts those buying houses, while oil shocks do the opposite.

Business class groups suffer the most from inflation.

Key takeaways

Lenders are hurt by unanticipated inflation because the money they get paid back has less purchasing power than the money they loaned out. Borrowers benefit from unanticipated inflation because the money they pay back is worth less than the money they borrowed.

Is cash king during inflation? ›

Inflation: Inflation eats away at the purchasing power of cash. Because of that and the low yield of cash assets, cash steadily loses value. The time value of money: Because of inflation and other factors, cash is worth more now than it will be in the future.

Some companies reap the rewards of inflation if they can charge more for their products as a result of a surge in demand for their goods. If the economy is performing well and housing demand is high, home-building companies can charge higher prices for selling homes.

Inflation FAQs

Examples include diversified index funds, as well as carefully investing in things like gold, real estate, Series I savings bonds and TIPS.

The rise in spending since 2021 shows how pernicious inflation can be for those in or near retirement, especially since higher prices can also erode the value of the cash and fixed-income investments many plan to live on in the near future, according to a study Boston College released Wednesday.

Unfortunately, prices can suddenly jump, so it's wise to be financially prepared. So, why are retired people hurt by inflation? “Retirees don't necessarily have income, meaning they need to make that lump sum last as long as possible, and high inflation erodes those savings,” Benson says.

A change in your earnings could lower monthly benefits

Unfortunately, recessions can sometimes lead to job loss; it's one of their harsh realities. In the unfavorable event that your income is cut or lowered during a recession, it could lead to a lower monthly Social Security benefit in retirement.

The Inflation Reduction Act of 2022 provides many benefits for retirees and older Americans. If the legislation does slow inflation, it could be a huge benefit to low-income seniors and those living on fixed incomes. The bill will also help tackle skyrocketing health care costs for seniors.

1. Avoid holding too much cash. Everyone needs to have some money in savings and checking accounts to pay for everyday expenses, save for emergencies and plan for large purchases. But as a long-term investment, cash is not where you want to be, especially when the economy is experiencing high levels of inflation.