Here’s why inflation may be less costly for some retirees

Personal Finance

A shopper at a San Francisco grocery store on May 2, 2022.
David Paul Morris | Bloomberg | Getty Images

Inflation is a growing concern as Americans spend hundreds more every month. But some retirees may avoid the sting of price hikes for gasoline, groceries and other costs.  

Annual inflation rose by 8.3% in April, hovering near a 40-year high, according to the U.S. Department of Labor.

More than half of Americans expect rising expenses to have a “big negative impact” on long-term financial goals, such as retiring comfortably.

More from Personal Finance:
How to calculate your own personal inflation rate
How fast does inflation cut buying power? A simple guide
What consumers plan to cut back on if prices keep going up

But spending changes throughout people’s golden years may reduce the impact of some rising costs, according to J.P. Morgan’s 2022 Guide to Retirement.

“It’s getting below the headline,” said Katherine Roy, chief retirement strategist at J.P. Morgan, explaining how the basket of goods retirees purchase may shift over time.

Although gasoline prices spiked to another record high this week, older households tend to spend less on transportation than families ages 35 to 44, making them less vulnerable, the report found.

And some retirees may have the flexibility to buy less gas by combining trips or sharing rides, said certified financial planner Catherine Valega, a wealth consultant at Green Bee Advisory in the greater Boston area.

“I don’t think we need to panic,” added Valega, explaining how price changes may be a chance to revisit budgets and long-term plans.

While J.P. Morgan suggests using a separate line item for the rising cost of health care, with a 6% growth rate, other spending categories may only inflate by 1.5% to 2% annually, Roy said.

If you pull out health care, retirees tend to spend less in real terms until age 80 on other categories, she said.

These findings align with a SmartAsset analysis showing retirement spending decreases in 11 of the 14 core categories found in the U.S. Bureau of Labor Statistics Consumer Expenditure Survey.

Although the rising cost of health care is a concern, it’s not enough to offset the decreases in retirees’ spending on housing, food and transportation, said CFP Anthony Watson, founder and president of Thrive Retirement Specialists in Dearborn, Michigan.

“For the majority of people, those other expenses go down over time,” he said.

For the majority of people, those other expenses go down over time.
Anthony Watson
Founder and president of Thrive Retirement Specialists

Of course, rising costs may currently be hardest on lowest-income households, which tend to experience higher inflation rates, according to a working paper from the National Bureau of Economic Research.

However, it’s important for retirees to have a long-term perspective when it comes to inflation, the J.P. Morgan report contends.

“It’s just a point in time and what matters is the average,” Watson said.

“Yes, we’re experiencing high inflation right now,” Roy added. “But we’ve come out of a historically low period for a really long time.”

Products You May Like

Articles You May Like

Housing supply is finally improving, as high prices and rising rates weigh on sales
10-month BTC price lows spark $1B liquidation as Bitcoin eyes $35K CME futures gap
Why the world needs a spot Bitcoin ETF in the US: 21Shares CEO explains
Altcoins stage a relief rally while Bitcoin traders decide whether to buy the dip
Robinhood shares jump 25% after crypto CEO Sam Bankman-Fried acquires stake

Leave a Reply

Your email address will not be published.