How to Stretch Your Retirement Nest Egg as Prices Rise
Inflation is eating away at older adults' purchasing power
ben mounsey-wood
Your retirement dollars aren’t keeping up with the cost of living thanks to 40-year high inflation. For retirees on a fixed income that’s a big problem, particularly with gas, food, rent, and energy costs skyrocketing.
It’s not clear how long inflation will remain high. The supply chain is still a mess and the war in Ukraine continues with no end in sight. The Federal Reserve is beginning to raise interest rates in an effort to rein in inflation, but the impact won’t be felt right away. As a result, retirees have to identify ways to make their dollars last longer now and for the foreseeable future. “Everything you need to live every single day is costing more,” says Pam Krueger, founder of Wealthramp.com. “Inflation has run between 2 percent and 3 percent for the past decade [versus 7.9 percent today]. We’re in a period that’s different right now. You’ve got to plan on it staying that way for the next couple of years.”
For many people, the first step to combat inflation is understanding what their monthly expenses truly are. Only then can you create a realistic budget and identify areas to cut outlays. It's something many people fail to do whether they are on a fixed budget or not.
When analyzing your spending, MJ Nodilo, Regional Director and Partner at the Phoenix office of EP Wealth Advisor says to get granular. Go beyond utilities, rent, mortgage, and other household expenses. Think about how many times you fill up your gas tank, get take-out, and/or hit the coffee shop. Understand what groceries cost and what you’re paying for streaming services, mobile, and digital apps. Armed with that knowledge you can better determine if that drive across town or streaming service is worth it. Those minor trade-offs don't seem like a lot but they do add up. “A lot of people don’t know what stuff costs nor where their money is going,” says Nodilo. “Knowing the real cost of living is the most important thing. Then you can make decisions and trade-offs.”
Make a budget
A budget is important in every stage of your life. That’s particularly true if you are on a fixed income. A budget will help you see where your money is going and help you stay on course to not overspend. You want to be as detailed as possible focusing at first on crafting a monthly budget. Go back three to six months if possible to get a good idea of your spending. If you already have a budget in place, go over it to ensure it can withstand the rise in inflation. If your budget fails you need to identify ways to shore up your cash flow.
Boost cash flow
That can come from reducing expenses or supplementing your income. The latter is a very viable option, given unemployment is near a 50-year low and employers are scrambling to find workers. “There are the most job openings the U.S. has had for twenty years,” says Nodilo. “That used-to-be $10 per hour job might be $15 or $18 an hour one now. A part-time job can be mentally healthy, especially for people cooped up inside for a couple of years.”
If a job is not an option, pinpoint ways you can reduce the money going out. That may mean curbing the number of times you get take-out, brewing your own coffee and tea, or taking fewer car trips. Without additional income, you have to cut spending to keep up with inflation.
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Check out what benefits you’re eligible for
Whether it's food, healthcare, rent, energy or income, there are federal and state programs available to help cover living expenses. In fact, there are more than 2,500 benefit programs nationwide covering everything from food to income assistance, according to the National Council of Aging. The non-profit operates a free online tool that can help you find benefits available in your area.
“Most people aren’t aware there are low-income subsidy programs offered by federal agencies,” says Josh Hodges, the council’s chief customer officer. “About $30 billion in benefits go unused.” Among the largest programs that can help is the Supplemental Nutrition Assistance Program or SNAP. Formerly known as food stamps, eligible individuals get money for groceries at participating supermarkets and farmers' markets.
Revisit your investment strategy
If you have a pension, 401(k) plan, or investment account, now is the time to conduct a checkup to ensure it's optimized and diversified to withstand an inflationary environment. The rate at which you are drawing down on your investments may also have to be reconsidered. That’s where a financial advisor or trusted family member or friend comes in. They can help you make sure your investment plan is intact and you are drawing down enough to live but not too much that your money runs out. “Look at all the things that are impacting the plan you had two years ago,” says Krueger. “If the plan told you that you could safely spend $4,000 a month and draw about 4 percent and you would be ok, you now have to revisit that with your eyes wide open. You need to see the gap to focus on how to fix it.”
Donna Fuscaldo is a contributing writer and editor focusing on personal finance and health. She has spent over two decades writing and covering news for several national outlets, including The Wall Street Journal, Forbes, Investopedia and HerMoney.