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Inflation and your savings

It’s not the 1970s, but inflation lurks and seniors feel the pain, financial experts explain.

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Today’s seniors remember the 1970s, when prices skyrocketed, and wages didn’t go up with them.


“From week to week, people couldn’t know the cost of their groceries, utility bills, appliances, dry cleaning, toothpaste and pizza,” wrote Robert Samuelson in his book, “The Great Inflation and its Aftermath.” 
No surprise that inflation “is important to seniors,” said Julie Virta, senior financial advisor with Vanguard Personal Advisory Services.  


What is inflation? When prices go up—and they can go up for any reason—and your income doesn’t, you can’t buy as much. It’s not just a matter of the cost of phones or flat-screen TVs, it’s food. Gas. Medicine. A safe apartment.


Overall, inflation has only gone up 1.6% on average over the last 10 years, according to the Economist.  But a few sectors are seeing rising costs, and those particularly affect seniors. 


“Healthcare,” said Virta. “That is one of their primary concerns.”  It includes premiums, Medicare supplemental insurance and out-of-pocket costs.


Those costs are even higher for women, said Cindy Hounsell, president of Women’s Institute for a Secure Retirement in Washington, D.C. “They have chronic illnesses, and they spend a lot more.”


Virta cited housing as another problem area. Rents are going up steadily (see box), but homeowners don’t have it easier. “[It’s] maintenance, property taxes... Think about how costs rise over time,” she said. 


Maintenance, in fact, is significant. Sometimes you need more help fixing things, or you need to do a significant renovation to accommodate a loved one’s needs. That often comes out of your pocket, although some states offer financial assistance.


 Elders who rent might choose more expensive apartments in order to have a handicapped-accessible home.


Virta noted that inflation can be found in “even everyday expenses... normal things that people do not always think about.”“Food, transportation,” Hounsell said, noting the price of gas. 


The typical senior is living off personal savings plus Social Security. In 2018, the average annual social security amount for a retired worker was $17,000, according to the Motley Fool. Cost-of-living adjustments are calculated with a formula that includes overall urban price increases, and if inflation is low, the COLA is low, even if seniors’ costs are rising.


So what can a person living on a fixed income do?


“A lot of people don’t plan,” said Hounsell, “for [the costs] of all the things they’re a captive audience for.” So step one is to make a plan. Contact one of the agencies in the box on the right for help.


Also, Hounsell suggests that seniors keep working if at all possible, and she is well aware of the challenges that older job-hunters or job-holders can face. But, “if you can bring in some money, you’re not depleting your savings.” 


Working also provides community and friends who can help if you don’t have family nearby. 


If you’re already saving, you can invest.  “When you think about investment planning, it’s important to mitigate long term risk of inflation,” Virta said. Vanguard, for example, “offers a number of funds that appeal to seniors, which can be used within a balanced portfolio.” 


The important thing when it comes to senior investing, said Virta, is to “consider how much risk you’re willing to take.”  Balance a little risk—enough to stay ahead of inflation—with caution, since it can be harder for a senior to make up for portfolio losses.


 You can always talk to a financial advisor, and don’t forget to look at a broker’s history on FINRA’s BrokerCheck.


Virta’s final word? 


Start saving, if you haven’t already, said Virta. “Every little bit helps, whether you’re saving in your 30s or [as a senior]... Even saving a small amount each month goes a long way, and doing it every time makes a big difference, even if you’re 65.”

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