There you are, enjoying your unfolding retirement when a rude and very unwelcome guest — inflation — shows up to ruin the party.
Inflation is an irritant no matter your age, but it hits retirees especially hard. Without a steady income, rising prices quickly can become an existential threat to any retiree’s financial well-being.
Following are some key ways that inflation is sapping the joy from your golden years.
1. It’s eroding the value of your money
The annual inflation rate is 9.1% as of June.
How bad is that? If prices continue to surge at that rate, your money’s purchasing power will be cut in half in a little less than eight years.
The math starkly underscores why everyone in positions of power — especially the members of the Federal Reserve Board — are so desperate to get inflation under control.
2. It’s making your debt more expensive
The Federal Reserve is on the warpath, repeatedly raising its federal funds rate in an attempt to cool the economy and snuff out inflation.
But if you are in debt, the Fed’s actions come with a nasty side effect: Every time the Fed hikes the federal funds rate, your credit card interest rate is likely to climb.
That means inflation can send your monthly credit card costs higher and higher — at least until prices once again are under control and the Fed stops raising rates.
Are you struggling to tame debts? Stop by the Money Talks News Solutions Center and find expert help with credit card debt.
3. It’s ruining your travel plans
And with today’s skyrocketing gasoline prices, loading up the camper or RV isn’t much of a money-saving travel alternative.
Your golden years are supposed to be the time to see the world, but inflation can push those dreams far out of reach.
4. It’s pushing you to take Social Security early
If you retired a few years ago — in the good old pre-inflationary period — you might have looked at your savings and concluded that you could delay taking Social Security until later, when your monthly payout would be higher.
But an extended bout of inflation can quickly change that calculation. If money begins to dry up long before planned, you might be forced to take Social Security early. And while that sometimes can be the best choice for people, it often is not.
5. It’s sapping the power of your annuity
Some retirees purchase annuities so they will have a steady, guaranteed source of income that is insulated from the gyrations of the stock market.
Annuities have their pros and cons, but one of their biggest drawbacks is that many of them do not have inflation protection built into them. If inflation rockets ahead, your annuity could become a lot less valuable than you ever imagined.
6. It’s forcing you to take on more risk
When inflation is low, you don’t have to worry that spiraling prices will soon outpace the ability of your savings to keep up.
But when inflation is soaring, getting an interest rate of 1% — or less — from a savings account probably isn’t going to cut it. That might force you to put more of your money into the stock market in the hope that your investment returns will keep your head above water.
Few people want to take on additional risk during their golden years. But in inflationary times, they might not have a choice.
7. It’s sending you back to work
For most people, the whole point of retiring is to stop working. Yet, a spike in inflation can send retirees into a panic and back to the job classifieds.
This isn’t the way it was supposed to be. But inflation upends everybody’s plans, and that includes the game plan of newly minted — or even veteran — retirees.
Ready to bow to the inevitable? Check out “20 Great Part-Time Jobs for Retirees.”