What Is Inflation Doing To Your Retirement Savings?

Is Inflation Eroding Your Retirement?

Chained CPI and retirementAs a retiree, or one day retiree, you may be concerned about the implications of the financial problems facing Social Security.  Without intervention, Social Security will be completely broke by 2037 and unable to make the necessary, relied upon payments to American seniors and disabled.  As a response to that, congress has been looking for ways to reduce the blow of a disappearing Social Security system.  There has been discussion about delaying the age at which a person can draw Social Security, reducing benefits, or the latest proposal is applying chained CPI as a measure to calculate inflation, which would lower the amount of cost of living adjustments (cola) that seniors would receive as a result of inflation.

Investors Can No Longer Rely Just On Social Security

As these cola adjustments make it more and more difficult to live on a social security check, people need to look towards other investment options to help fund their retirements. Unfortunately, with low interest rates, bonds and CD’s are not generating enough income to be relied about solely in conjunction with Social Security.

The Problem With Chained CPI For Social Security

Chained CPI is designed under the assumption if inflation is causing prices to go up, the consumer will make necessary budget cuts to be more “thrifty” in light of inflation.  Thus, inflation really isn’t affecting the consumer as much.  For example, if inflation is affecting the price of meats, and beef is more expensive than chicken, consumers will adapt by buying more chicken, so inflation isn’t affecting them.  This principle doesn’t apply across the board though.  Seniors are already known for being thrifty and cautious with their savings.  Most spend money on necessities like health care and not on frivolous items.  Chained CPI will be more acutely felt by the aging population than it will be by a young person.

The Gap Between Inflation And Wages For Senior Social Security

Currently, the gap between cola and inflation is around 0.58%, which over 29 years has built up to be a 16.7% difference for income.  That’s a considerable loss of purchasing power if you’re reliant on Social Security as income.

So what’s a person to do?

If bonds and cd’s aren’t cutting it, and social security is becoming less reliable, what is the solution for today’s retirees?  To begin saving at a younger age, to get a more diverse portfolio, there are many choices to be made when saving for retirement.  For more information on how to prepare yourself for retirement in today’s investing environment, speak to a Redhawk financial advisor near you today.

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