It’s real, it’s global, it can’t be stopped and it can be good or bad.
It is inflation. I had someone tell me today that U.S. annual inflation has been 10% for the last several years. That is not true of course although it may feel like it to some people.
My guaranteed income is a pension and Social Security. There is no COLA on my pension. Since I retired in 2010, the buying power on 87% of my income has eroded by 43%. Most Americans are similarly affected or worse.
Not a day goes by I don’t read about inflation in my Facebook groups or hear from a fellow retiree complaining about the size of the next expected Social Security COLA. “Absurd” at 2.5 % one women just told me. “They fudge the numbers,” another retiree said.
A few fellow retirees still hold out the hope our former employer will give a COLA – it never will. I arranged for seven COLAs over my years in employee benefits, but that was before there was a 401k plan in addition to a pension. To this day few employee or retirees understand the connection.
I recall decades ago in seminars telling employees planning to retire that longevity was their greatest risk in retirement. Well, this is what – in part – that looks like. It must be worse for those who retired early in their fifties.
The history of inflation is no secret, it goes up and down, extreme highs and lows, but it always keeps chugging along. Kinda like reverse investment compounding. Nevertheless, when it comes to retirement, it seem largely to be ignored and we feign surprise when our buying power ain’t what it used to be.
Use any retirement planning tool and you are asked for an inflation assumption, but how many Americans take the trouble or if they do, use realistic assumptions? I didn’t, I used a different approach I retired at age 67 with an income equal to 100% of my pre-retirement base salary to give us a cushion, but even my strategy hasn’t been sufficient and I’m glad I have a backup in the form of investment income.
How are you or do you plan to cope with inflation in retirement?
QUINNSCOMMENTARY 
In my pre-retirement seminars, back in the 80’s and 90’s, I referred to inflation as Rule of 72, “in reverse”.
Rule of 72: Take the annual interest rate, divide into 72, and you get the number of years it takes for money to double (for example: 6(%) into 72 = 12 years, assuming earnings are tax deferred).
Rule of 72 “in reverse”: Now take the inflation rate, divide into 72, and you get the number of years for your purchasing power to be halved (for example: 3(%) into 72 = 24).
So, assuming retirement at age 65, without an increase in the nominal amount, a 3% annual inflation rate will halve the purchasing power by age 90.
That said, inflation ≠ CPI. The CPI is someone else’s market basket of goods. You are a practicing economist – in terms of how you deal with price inflation – every time you go to buy something. At the grocery store, if beef is too expensive, you buy chicken or pork, or go meatless. These decisions are made almost unconsciously (except for the griping about ever increasing costs), at the snap of your fingers, one decision after another.
So, your household market basket of goods is changing all the time – with exceptions for housing, and a few other essentials where demand is inelastic or difficult to quickly adjust. The only way to confirm what inflation you actually suffered is look back on what you spent, and how your market basket of goods changed.
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Dad died broke. A lot of people do, or in debt. I think my oldest sister paid for his funeral.I (we) are by no means rich, but we are making more in retirement than when working so still building up our savings and investments, so inflation is not a concern.We’ve been lucky to help the kids/grandkids, and hope to leave them something when we go, if the creek don’t rise.
The “creek” mainly is assisted living, for one or both. That could wipe out our savings in a year or two.
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assume you were born in 1962–you could take Social Security at a reduced level this year for the 1st time and maybe you have retired–what to do to create streams of income?–in1962 the S&P 500 closed at 63 and on 12/31/2023 at 4,770–that is a factor of 76–just might have kept up with inflation.
cash dividend paid out was $2.15 in 1962. Last year cash dividend of $70.30. 33X Maybe an inflation fighter?
CPI (inflation) closed at 30 in 1062–307 on 12/31/2023. That is rising by a factor of 10.
Looks like equities have smoked inflation not only for growth but for cash dividends.
Real world we have invested in a value fund with dividends objective # 1 and growth # 2. Close to 75 years with same process and objective. Running a hypothetical–$500,000–1962–rolling 25-year periods–dividends in cash–best 25-year period ’74-99 with $2.7 cash dividend. Worst 1998-2023 $478,086. $1,751,650 is 12/31/2023 value.
S&P 500–same everything–best 25-yr. period ’74-99 $1.8 million—-worst ’98-2023 $355,727.00 with a closing 2023 value of $1,940,170.
This ain’t rocket science–equities, based on history, deserve a very large % of your assets. Bonds are a buffer in distress years, but investing in the world’s best companies works real well.
Every year everything I buy costs more. 7 most important words of a retiree,
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