Groceries or rent? Medicine or utilities? Record-setting inflation will increasingly force such choices on seniors on fixed income, financial experts say.
The Consumer Price Index, which rose 7.9% in February over the previous 12 months, is outpacing Social Security’s annual cost-of-living adjustment for inflation, retirement planners and economists warned Wednesday.
What’s more, inflation is eroding the relative value of seniors’ investments and savings, reducing their purchasing power and lowering the material quality of their lives.
“Older Americans are getting hammered right now,” said economist Victor Claar, a professor at Florida Gulf Coast University. “And for many the crisis is already here.”
Social Security recipients got a record 5.9% annual bump in January and may get another bump of 7.9% next year, but food prices were up 1% overall and food-at-home prices up 1.5%. Rent and clothing costs also increased in February.
“Further eroding the impact of the Social Security adjustment this year was the largest increase for Medicare Part B premiums in the program’s history,” said retirement planner Chris Orestis, president of Retirement Genius.
John A. Moore, chairman of accounting, finance and economics at Walsh College, said seniors face the additional problem of spending more of their income on consumer goods than other age groups.
He pointed to a 2016 article by the Bureau of Labor Statistics showing that 65- to 74-year-olds spent 75% of their income on housing, food, transportation and health costs before COVID-19.
“Inflation is a hidden tax on the poor and senior citizens,” Mr. Moore said. “Their best hope is for policymakers to make the hard decisions needed to harness inflation, just as Paul Volcker did in the late 1970s and early 1980s.”
Financial adviser Chris Murray, founder of Murray Financial Group, said seniors should be mindful of the overall cost of goods.
“People are having to make decisions on buying groceries versus putting gas in their cars with gasoline prices at record highs,” he said. “For people who are retired and on fixed incomes, they are either eating more of their savings or sacrificing in other areas.”
Marc Scudillo, managing officer of EisnerAmper Wealth Management and Corporate Benefits, said the changes could surprise some seniors.
“For a long time now, retirees had become accustomed to little to no changes in their income needs year over year,” Mr. Scudillo said. “Those income needs would remain consistent for three to five years, and then a slight increase would be required for inflationary adjustments to income so clients could maintain their lifestyle.”
Economist Judson C. Edwards, dean of the Sorrell College of Business at Troy University, said seniors also should consider sales taxes when deciding where to retire.
“One of the emerging areas of concern for fixed, low-income retirees, which accompanies that of rising consumer goods prices, is the growing impact of state and local sales taxes,” he said. “Though many Southern states are often cited as top tax-friendly environments, these same states have some of the highest sales taxes in the United States.”
For example, he said groceries are taxed on an average of 9.5% across Alabama, where he lives.
“That may not seem like much, but the longer inflation continues, it will steadily eat away at their monthly budget,” Mr. Edwards said.
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