How High Inflation Will Shrink Your Retirement Savings

The CPI (Consumer Price Index) numbers are in for June, 2022, and they are not good. In fact, they are so bad, they are said to be the worst numbers in 40 years. They might even be the worst numbers since the 1880s, depending upon which source you research.

How does close to ten percent annualized inflation affect retirement savings? It devours it, like a snake that slowly ingests a helpless rabbit. However, if you’re retired and finding you suddenly can’t afford even basic necessities plus out-of-pocket medical expenses, there is some hope on the horizon.

If you 62 or older and have owned your family home for decades while paying the monthly mortgage on time, you are eligible to apply for a reverse mortgage. If approved, you can tap into potentially hundreds of thousands of dollars which can supplement the cash you’re losing due to hyperinflation.

You have the option of taking your proceeds in one lump sum or equal monthly disbursements. The loan need never be paid back unless you leave your home, or you die. You can research which reverse mortgage best suits your needs by going to

But reverse mortgages aside, what other ways will high inflation shrink your retirement savings? According to a new report, most Americans think of high inflation as a short term problem when they go to fill up their gas take or head to the mega-mart to purchase food and other household items. But nowadays, inflation looks like it’s here to stay for a while and it’s something that’s got to be taken into account when planning for future expenditures.

Say the experts, “on an individual level, the inflation rate affects how much your retirement dollars will really be worth.” Given enough time, inflation causes your income and savings to greatly devalue.

Combined with high taxation, this is a recipe for financial disaster. This means you need to have an understanding of how high inflation can damage your retirement plan so that you have enough assets and cash to last you for the rest of your life.

Social Security Payments

Almost 80 percent of all U.S. retirees are presently claiming Social Security benefits as a portion of their retirement income. The vast majority of aging retirees have come to depend on it since 93 percent of persons 65 and older are claiming Social Security.

One of the crucial parts of Social Security is an “annual elevation of the inflation index.” This is said to protect beneficiaries from losing their power to purchase the goods and services they need.

Yearly, pricing indexes are utilized to calculate cost-of-living adjustments, but these are said to be sorely inadequate. Almost a third of all Social Security recipients have lost a tremendous amount of purchasing power in recent years, and now it’s only getting worse.

Company Pensions

About half of all retirees aged 65 and older are able to collect on company pensions. But there are a variety of ways that pension is “negatively impacted by inflation.”

Typically, pension plan benefits are determined by the last few years’ salary rates that the employee earned. If high or hyperinflation occurred during those same years, benefits can be badly impacted since they have been based partially on pre-inflation salary numbers.

If high inflation occurs after retirement begins, the recipient must realize that your benefits are based on an outdated salary. In other words, it doesn’t reflect the current market rate for your previous job.

Also, pensions are almost never adjusted to reflect spiking inflation. However, according to the National Association of State Retirement Administrators, 75 percent of pension plans that are sponsored by local and/or state governments will provide some cost-of-living adjustments.

Passive Income

The good news about passive income that comes from dividends, rental income, and interest is that it can sometimes move along with inflation. Each of these incomes sources has direct ties to rising costs. It is said that almost 50 percent of all retirees are able to collect income from one or more of these sources.

It’s important to remember that interest rates rise when the Federal Reserve implements increases in federal funding rates. This is done to decrease the demand for goods and services which is a way to battle inflation. Inflation itself raises rates naturally, but the government takes direct action to combat it.

Dividends on assets comes about by companies distributing a portion of their net income to their investors. When hyperinflation occurs such as that which is occurring in 2022, the Federal Reverse will usually decide to “raise the federal reserve rate.”

By raising these rates, credit becomes more expensive in an attempt to cool the economy off. This is meant to ultimately bring the costs of goods and services down due to lack of demand.

In the final analysis, if you’re a retired person living on a fixed income, it’s best to keep spending to a minimum while spiking inflation persists.

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