Soaring inflation is eating away at Americans’ retirement savings

Rising prices are squeezing household budgets across the country, but the highest inflation in four decades has hit older Americans especially hard.

That’s because many of the country’s 56 million people aged 65 and over depend on a fixed income and limited savings – and need to maintain their same level of purchasing power to cover their monthly expenses. for an extended period, according to Mary Johnson, a Social Security Analyst for the Senior League.


Half of older people who live alone didn’t have enough money before the pandemic began to cover their basic needs, according to the Elder Index, a cost-of-living measure created by the Gerontology Institute of the United States. University of Massachusetts at Boston. Rapidly rising inflation weighs more heavily on these people.

The Social Security office in Burbank, California on November 5, 2020. (Valerie Macon/AFP via Getty Images/Getty Images)

Prices rose 8.5% in March from a year earlier, the Labor Department said last week, the fastest pace since December 1981. The increase extends to commodities whose price has skyrocketed over the past year, such as food (8.8%), gasoline (48%). %), electricity (13.5%) and rent (5.1%).

“Yes [older people] have any retirement savings, inflation can drastically reduce what’s in their savings account,” Johnson told FOX Business.

There are two reasons why rising consumer prices are eating away at the nest egg of older Americans: First, retirees need to withdraw more money to cover rising costs. On top of that, people with any type of fixed income investment, like bonds or CDs, tend to see lower returns because higher inflation usually comes with higher interest rates.

“These are meant to be ‘relatively safer investments,'” Johnson said. “But the real danger is that inflation can really eat away at the returns of these types of investments. The problem with a low interest rate environment, and the problem with an inflationary environment, is that you have to shoot more. It’s sort of a lose-lose.”

About 12% of seniors live on Social Security alone, which pays an average of $1,657 a month, a 5.9% increase from the previous year. But soaring inflation has already eroded the entire increase, according to calculations by the Senior Citizens League.


People shop at a supermarket in Glendale, California on January 12, 2022. (Robyn Beck/AFP via Getty Images) / Getty Images)

At the end of April, the total shortfall for an average benefit was $162.60.

About 9.5% of people over 65 live below the federal poverty level, compared to 8.8% of young adults, according to a Census Bureau measure. A single person is considered poor in the United States if they earn less than $12,500 per year.


A recent study by Allianz Life Insurance Company of North America showed that only 40% of retirees believe their income keeps pace with inflation. About half of respondents said they have a plan to deal with the rising cost of living.

“Whether they’re retired or still in the workforce, all Americans are dealing with inflation right now and need to develop strategies that ensure their incomes keep up with rising costs,” said Kelly LaVigne, vice president of consumer insights at Allianz Life. . “While changes in spending habits can help in the short term, it’s important that people take measured steps, like adding a source of guaranteed income that can help protect their finances without sacrificing the security of their lives. retirement.”

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