Many retirees or people planning to retire soon may be increasingly worried about what sort of lifestyle they can afford.

The good news is that the headline inflation number of 9.1% from the Bureau of Labor Statistics represents an average rise in consumer prices. Your own inflation rate may be different depending on what you buy and where you buy it.

Inflation is represented as a single number, but in reality, it affects everyone differently depending on how they spend their money. As you get older, you spend less on food, transportation, clothing and entertainment but spend more on healthcare, charitable contributions and services.

The bad news, however, is that inflation still impacts you. It could be worse than average, depending on where you live. Furthermore, retirees often find themselves in a precarious position regarding inflation based on several factors.

Regardless of whether retirees’ expenses are more or less affected by inflation than workers, higher expenses introduce additional risk to a retirement plan. First, expenses may rise at a faster rate than their fixed income. This creates the need to either reduce spending or withdraw more money from investments during a bear market. Second, the Fed’s response to high inflation has been to raise rates which may negatively impact the value of existing fixed income investments that are owned more often by retirees than workers. Third, high inflation and rising rates may create additional volatility in the stock market which affects retirees more since they are actively taking withdrawals from their investment accounts.

If you’re retired, close to retirement or just thinking about retirement, no doubt inflation has you wondering about your plans. The questions that represent popular search engine requests will be in my next blog.

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