The Consumer-Price Index (CPI) rose to 4.2% in April as compared to last year.[1] We could see higher prices when it comes to travel, food, cars, and other common goods and services. High inflation can hurt retirees who are living off their savings, especially when we have near-zero interest rates. We already see bigger Social Security Cost of Living Adjustments predictions to keep pace with inflation, conversations about how to protect money from inflation among investors, and legislation anticipating inflation.
The Securing a Strong Retirement Act
In 2019 we saw the SECURE (Setting Every Community Up for Retirement Enhancement) Act pass and change the rules regarding retirement account distributions and contributions, the taxation of inherited accounts, and other important points. Now, a new bill call Securing a Strong Retirement Act is making its way through Congress. This bill would raise contribution catch-up limits by allowing them to increase each year with inflation. Right now, contribution limits may increase every few years by round numbers, and this is not tied directly to inflation. The bill would also allow those over 60 to contribute an additional $10,000 into their 401(k), 403(b), and an additional $5,000 into a SIMPLE IRA.[2]
Potentially Higher Social Security COLAs
In January 2021, Social Security beneficiaries saw a 1.3% Cost of Living Adjustment (COLA) increase.[3] In 2022, they could be looking at a much higher increase due to inflation. While COLAs are meant to help Social Security benefits keep pace with inflation, the purchasing power of the average Social Security benefit has fallen by a third since 2000, according to the Senior Citizens League.[4] The yearly COLA is based on increases in the Consumer Price Index (CPI) for Urban wage earnings and clerical workers. These calculations may or may not accurately reflect how retirees experience inflation. The Senior Citizens League predicts a 4.7% benefit increase for 2022[5] in anticipation of higher inflation.
Plan for Inflation
Are you prepared for rising costs in retirement? If you’re concerned about potentially higher inflation in the future, especially after significant government COVID relief spending and low interest rates, come speak to us today. Making money last through retirement can be difficult for today’s retirees who face these challenges. However, there are strategies to help combat inflation. We’re here to help you find the investment plan that works for you, your lifestyle, and the goals you have for your family.
[1] https://www.wsj.com/articles/us-inflation-consumer-price-index-april-2021-11620781266
[2] https://www.forbes.com/advisor/retirement/secure-act-2/
[3] https://www.ssa.gov/oact/cola/colaseries.html
[4] https://seniorsleague.org/social-security-benefits-lose-33-of-buying-power/
[5]https://www.investmentnews.com/soaring-inflation-likely-to-boost-2022-social-security-cola
Advisory services are offered through Millstone Financial Group Limited Liability Company, a Registered Investment Advisor in the State of New Jersey. Insurance products and services are offered through Millstone Financial Group Limited Liability Company, an affiliated company.
Millstone Financial Group Limited Liability Company is not affiliated with or endorsed by the Social Security Administration or any other government agency.
Guarantees are based on the claims paying ability of the issuing insurance company.
