Skyrocketing inflation is putting retirees in the red

Rising inflation is causing many to dig into their savings accounts. For retirees, the nest egg they have been relying on is beginning to crack.

From food to housing to cars, prices have risen everywhere. The trouble, according to Mark Grywacheski with the Quad Cities Investment Group, is there's no way to avoid it.

"Especially for retirees, the low income … is now becoming a challenge. It's forcing retirees to pull extra money from their savings or retirement accounts, just to cover the cost of everyday basic necessities," he said.

On July 13, the U.S. Labor Department reported inflation was at 9.1% and the producer price index at 11.3%. Salaries and payroll were reportedly up 6.7% in June, but the difference between the two is what is impacting consumers the most, said Philip Seline, branch director of RBC Wealth Management Quad Cities.

To combat this problem, the federal reserve has increased lending rates and moderate credit. So far in 2022, that has moved interest rates three times. Higher interest rates to flight inflation, however, mean higher credit card rates, auto loans and now mortgages.

"The impact on the retiree or someone looking to retire is everywhere," he said.

To makeup for inflation, social security was raised by 5.9% going into 2022.

"Recently, one of the actuaries at the federal level was questioned on where he thinks social security will go for an increase in 2022. His response was, 'It's going to be elevated,'" Seline said.

The actual increase will not be announced until December and go into effect in January of 2023. Seline said experts were predicting the increase to be anywhere from 6% to 8% — a monumental move.

"That would be the largest increase since 1981," he said.

Pensions could also be affected. Because they are based on pre-inflation salary, there is a chance the benefits could be negatively impacted.

"Inflation can lower their buying power if their plan doesn't have inflation or built-in increases over time. Working on a plan that accounts for these factors can help retirees understand what the future may hold, should inflation continue to rise like we're seeing today," said James O. Wegener, a financial consultant with Thrivent in Davenport.

Other streams of income that could help keep up with the rate of inflation should be considered, he said. As for investments, volatility is to be expected, but not feared.

Grywacheski agreed, saying his best advice is to not make rash decisions, especially when it comes to the stock market. Despite the "chaos," the one constant about the stock market over the last 137 years it that it, "has always recovered."

Instead, Grywacheski recommends looking at cash flow needs in terms of short and long term. Short-term needs are constants such as food, utilities and gas. Long-term are investments, new vehicles and housing upgrades.

Creating "breathing room" in the budget by looking at these two plans is important, Wegener agreed.

A readily available amount of cash is best for short-term funds because investments will not earn enough interest to offset the impact. But, for long-term cash needs, he said more money in a diversified portfolio is best. This will help take advantage of the rising interest rates and decline in stock.

"The goal is to generate higher returns because you're going to need those higher returns to help offset the impact of inflation. It's kind of a balancing act," he said.

Wegener agreed, saying the most important thing to have moving forward is a plan. In a world of uncertainty, strategy is key.

"It's important to recognize that we're going to navigate periods of uncertainty often due to inflation and market volatility," he said. "In my opinion, having a financial strategy is one of the best forms of preparation and can give people increased clarity about their current situation and where they're headed.