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Why inflation is less more likely to hurt retirees

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Inflation has continued to rise, but some retirees won’t feel the brunt of many soaring costs, experts say.

Annual inflation jumped by 9.1% in June, growing on the fastest pace since late 1981, the U.S. Department of Labor reported Wednesday.

Higher prices have many anxious, even those earning six figures. Some 65% of Americans making $100,000 or more are “very concerned” about inflation, in keeping with a CNBC poll.

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But spending changes throughout people’s golden years may reduce the impact of some rising costs, in keeping with J.P. Morgan Asset Management’s 2022 Guide to Retirement.

“It’s getting below the headline,” said Katherine Roy, chief retirement strategist at J.P. Morgan, explaining how the basket of products retirees purchase may shift over time.

Older Americans spend less on key expenses

While J.P. Morgan suggests using a separate line item for the rising cost of health care, with a 6% growth rate, other spending categories may only inflate by 1.5% to 2% annually, Roy said.

For those who pull out health care, retirees are inclined to spend less in real terms until age 80 on other categories, she said.

These findings align with a SmartAsset evaluation showing retirement spending decreases in 11 of the 14 core categories present in the U.S. Bureau of Labor Statistics Consumer Expenditure Survey.

For instance, despite higher prices on the pump through June, older households generally spend less on transportation than families ages 35 to 44, making them less vulnerable, the report found.

And a few retirees can have the pliability to purchase less gas by combining trips or sharing rides, said certified financial planner Catherine Valega, a wealth consultant at Green Bee Advisory within the greater Boston area.

“I do not think we’d like to panic,” said Valega, explaining how price changes could also be a likelihood to revisit budgets and long-term plans.

Most retirees’ expenses generally go down over time

Although the rising cost of health care is a priority, it isn’t enough to offset the decreases in retirees’ spending on housing, food and transportation, said CFP Anthony Watson, founder and president of Thrive Retirement Specialists in Dearborn, Michigan.

“For the vast majority of people, those other expenses go down over time,” he said.

For the vast majority of people, those other expenses go down over time.

Anthony Watson

Founder and president of Thrive Retirement Specialists

After all, rising costs may currently be hardest on lower-income households, which are inclined to experience higher inflation rates, in keeping with a working paper from the National Bureau of Economic Research.

Nonetheless, it is vital for retirees to have a long-term perspective in terms of inflation, the J.P. Morgan report contends.

“It’s only a cut-off date and what matters is the common,” Watson said.

“Yes, we’re experiencing high inflation right away,” Roy added. “But we have come out of a historically low period for a very very long time.”

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