‘Inflation is the silent killer,’ as many retirees are feeling the sting

Rising inflation is a concern for Kevin Linehan, 68, a retiree in Fitchburg, Massachusetts.

After a heart attack at age 44, Linehan left his career with the Postal Service early, opting for reduced disability retirement income.

“It wasn’t the best financial thing to do,” he said. “But at the time, it seemed like my life was more important than the job.”

Although it’s been tough to survive on a “skimpy income,” Linehan, an Air Force veteran, secured government-subsidized housing through Veterans Affairs for less than $500 per month. The rent stays relatively stable year-to-year, with annual increases depending on his income. 

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Over the past several months, however, Linehan has noticed a spike in prices for necessities like food and gasoline. He has seen higher costs for grocery staples like bread and milk. There have also been steady hikes in gasoline prices, limiting his ability to travel.

“It’s like now that we’re getting over [the pandemic] everybody’s jacking prices up,” he said.

The rising food costs have been particularly troubling for Linehan, who receives monthly benefits from the Supplemental Nutrition Assistance Program, known as SNAP. While SNAP benefits grew during the pandemic, he expects it to drop back to $16 per month once the state’s Covid-19 relief runs out.

“I don’t know how much longer, [the extra benefits] are gonna last, but that’s helped me out tremendously,” he said.

The May consumer price index, measuring the cost of food, housing, gasoline, utilities and other goods, jumped by 5% from the previous year, according to the Labor Department. Food prices have increased by 2.2% over the past 12 months, and gasoline has swelled by 56.2%, recovering from pandemic dips.

While Federal Reserve officials have said these price increases are transitory, retirees like Linehan still worry about prices creeping up.

Americans’ expectations for year-ahead inflation grew to 4% in May, the seventh consecutive monthly increase, according to a report by the Federal Reserve Bank of New York.

“Inflation is the silent killer,” said certified financial planner Brad Lineberger, president of Seaside Wealth Management in Carlsbad, California. “It can erode purchasing power to the point where someone wakes up and can’t live the lifestyle they once did because they can’t afford to.”

Although climbing prices have alarmed many retirees, others aren’t feeling the effects. 

“Our clients have not been greatly affected by the temporary inflation flare-ups,” said Jon Ulin, CFP and CEO of Ulin & Co. Wealth Management in Boca Raton, Florida. 

Diane Benson, 69, and Al Sapienza, 70, in Seattle are among the retirees who haven’t felt the sting of inflation. After selling their home in the suburbs of Boston, the couple moved to Seattle in 2019, eager to live near their 40-year-old son, David.

Sapienza retired early from his 25-year job with the Social Security Administration, shifting to higher education before leaving full-time work in 2015.

Benson left her career in social work in 2007, opting to spend more time with her ailing mother. Her loss of income wasn’t an issue, she said.

“We’ve never really extended ourselves beyond what we could afford,” Sapienza said. “Actually, we probably lived well below it.”

While they have noticed the uptick in prices, inflation hasn’t impacted their finances “in any real sort of way,” he said.

Inflation may be challenging for those living on a fixed income. However, Benson and Sapienza both receive payments from a pension and Social Security, and both with cost of living adjustments, Sapienza said.

While Social Security payment changes have historically been modest, creeping prices have bumped estimates for the 2022 Social Security cost-of-living adjustment to 5.3%, the biggest boost since 2009, according to The Senior Citizens League.

“This year, people will be seeing prices go up and their benefits will not be rising immediately to compensate, but it will rise in 2022,” said Alicia Munnell, director of the Center for Retirement Research at Boston College.

Benson and Sapienza also have untapped retirement accounts, with plans to wait until age 72 to start withdrawing the funds.

The so-called three-legged stool of retirement income — pension, retirement accounts and Social Security — has become less common among retirees. Only 6.8% of older Americans receive income from all three sources, according to the National Institute on Retirement Security.

While some retirees may feel anxious about surging prices, there are ways to minimize the effects, said Jeffrey Tomaneng, CFP and wealth advisor at Asset Management Resources in Hyannis, Massachusetts.

For example, he encourages clients to review their portfolios, with the possibility of shifting a percentage to more aggressive assets, he said.

Some clients’ parents are now in their 90s and running low on savings. But a little more portfolio risk 20 or 30 years ago would have improved their situation today, Tomaneng added. 

“We like to remind clients that they can’t get too conservative in their asset allocation too soon because they need stocks to help fight off inflation,” Lineberger said.

Inflation may be distressing for retirees without a nest egg, but there may be creative ways to offset the effects. They may consider relocating or exploring communal living situations with family or friends, Tomaneng said.

However, those looking to downsize and buy elsewhere may prefer to wait, depending on the market, Ulin said.

The influx of transplants and the limited number of properties have caused a 10% to 20% spike for housing in South Florida, for example. 

Of course, not everyone has the resources or desire to move away from family.

After many years in lower-cost areas, Linehan returned to Massachusetts after his wife passed away. He now lives close to his sons and four grandchildren, feeling relief that family is nearby in case of an emergency.

Despite the rising prices and SNAP benefit reductions, he feels confident he will manage to get by.

“I’m doing all right for somebody who doesn’t have a lot of income every month,” he said.