Inflation Likely To Continue to Erode Social Security Buying Power in 2022 

Experts will tell you the greatest risk in retirement is longevity. That because the longer you are retired, the greater the impact of inflation. While virtually no one actually lives on a fixed income, keeping up with inflation is tricky.

Social Security COLAs help, that rare person with a pension and COLA – think government workers – gets a boost and the growth in a portfolio using the 4% withdrawal strategy adjust for inflation. So what’s the problem?

The Senior Citizens League has received more than 200 emails over the past month, with many retired and disabled senders describing the dire situations they face as rapidly rising inflation makes it impossible to pay the bills.

Source: 5.9% COLA Welcome, Inflation Likely To Continue to Erode Social Security Buying Power in 2022 | The Senior Citizens League

The problem is those adjustments are often insufficient and inflation’s impact varies by location and retiree lifestyle.

There are a few things you can do to cope.

  • Strive to begin retirement with more income than you think you need. Aim for income replacement close to 100% of pre-retirement income. That creates a cushion.
  • Rethink really early retirement- like in your mid 50s. The longer retired the greater the risk.
  • Build supplemental income streams that create dividends/interest. Allow them to reinvest until you need to tap them for inflation.
  • If using the 4% rule – or similar- don’t apply the inflation adjustment the first few years of retirement. Save it for a rainy day.

Whatever you decide, inflation is real. You can’t avoid it. You must plan for it.

One comment

  1. Inflation is real? If that’s a surprise to you in retirement today, have to wonder where you’ve been and what you were thinking.

    In retirement, we all need to separate the Basics, everyday living expenses, with the one-offs (the unexpected expense from an illness, a repair, etc.) and diecretionary spending (travel, eating out, etc.)

    Yes, absolutely, if you have problems making ends meet with everyday expenses, and price increases will worsen your situation. And, yes, if you fail to prepare for the one-offs, when they come, they will likely come with larger price tags in the future.

    Yes, changes in price have been modest for the past 40 or so years. How did retirees use that lull to prepare? Keep in mind that anyone who is a retiree today lived through the rapid price increases of the 70’s and early 80’s AS AN ADULT. So, if a single year @ 7% “makes it impossible to pay the bills”, all that tells me is that most of those retirees who are now unable to pay regular expenses should have done more to prepare and taken advantage of the lull in price changes.

    At this late date, if you are already retired, my suggestion is to rely on your past decision-making skills when it came to buying – adjust your purchases. You’ve done it, mostly unthinkingly or unconsciously all your adult life.


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