Post: Next Avenue: More ways retirees can outfox inflation

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Consumer inflation accelerated to an annual rate of 7.5% in January, the fastest pace in 40 years, according to the Bureau of Labor. Rising costs of food, energy and shelter hit retirees on fixed incomes the hardest.

Like many people who are no longer working, Dolores Macrina, a 74-year-old Philadelphia resident, said she is reluctant to compensate for rising prices by withdrawing more from her retirement savings account because her investments are doing poorly.

“The way it’s working — your income is not increasing, but all prices are increasing,” she said. Like many older adults, Macrina is adapting by trimming expenses.

“I’m on the generous side with churches and (charity) benefits, but now I have to change that,” she said.

Another Philadelphia resident, Cecilia Ruiz, 61, said she always thinks her monthly Supplemental Security Income check will cover her expenses, but it does not. “The prices (at markets) are outrageous and they don’t have half the stuff,” she said. “My grandson drinks Enfamil (a type of baby formula) and we had a hard time trying to get [it].”

Make a short-term plan

Brian Stivers, investment adviser and founder of Stivers Financial Services in Knoxville, Tennessee, said the most important thing retirees today can do is to draw up a short-term plan to deal with inflation. This may require postponing travel plans, changing how they shop, rethinking where and how often they eat out and scaling back charity and gift giving.

“Taking the time to think through the life choices they make every day and deciding what is essential, what is wanted and what they can give up, can free up necessary dollars to cover the added strain of inflation,” Stivers said.

For many, the word “budget” can rob them of their joy in retirement. But budgeting is simply knowing your income and basic expenses for shelter, food and utilities, and then making informed decisions as to how you want to spend the money you have left.

Also see: There’s a big hole in the Fed’s theory of inflation—incomes are falling at a record 10.9% rate

Budgeting can be as simple as 1, 2, 3

Stivers encourages retirees to take an hour or two to examine their credit card and bank statements and write down in large categories how much they have spent in each category for the past couple of months. Categories should include gas, restaurants, clothing and travel.

Then, he suggests labeling each item with a one, two or three. Ones are essential to enjoyment of life. Twos may not be essential but are really wanted. Threes are things retirees can live without until inflation is back under control.

“Immediately get rid of the threes to see if that frees up enough monthly cash flow to absorb the higher costs of ones and twos,” Stivers said. “Common types of threes for many people may include magazine subscriptions, premium cable channels, gym memberships, fast food visits and day trips.”

Once you have jettisoned the threes, Stivers advised that you look at your twos, or “wants.” One of the biggest is dining out. To lower this expense, look for buy-one-get-one-free restaurant promotions, early-bird specials and coupons, or decide once a week to get together with another couple at home instead of going out.

Another common “want” is shopping for nonessential items like clothing, household décor and gifts for children or grandchildren.

“You need not give this up entirely, just scale back and look for shopping center, big-box warehouse or online discount shopping sites to find clearance items, end-of-season sales, etc.,” said Stivers.

A big area where people can save is travel, he added. Look for destinations within an hour or two drive to avoid airfares, parking fees and rental car costs, and use credit card points for hotels. Or try a staycation, relaxing at home, enjoying local attractions and saving a considerable amount of money in the process.

If you invest in the stock market, Stivers said you should consider “sector” investing. Invest in mutual funds or ETFs (Exchange Traded Funds) focused on sectors, or industries, that are more likely to do better in inflationary times because they provide goods and services that people cannot do without, such as energy, banking and consumer staples.

As the Federal Reserve raises interest rates to battle inflation, keep a close eye on what your fixed-rate savings earn. Because the Fed lowered rates to near 0% to forestall an economic slowdown that economists anticipated during the COVID-19 pandemic, Stivers said interest on most fixed-rate savings accounts went under 0.5%.

A few simple tips to outfox inflation

Alternatives, such as short-term or fixed annuities that may be paying 2% to 3% currently and are likely to go up as a result of the Fed raising rates, can make a difference. For example, Stivers said if you have $200,000 in a bank savings account paying 0.5% annually, you can expect to earn about $1,000 a year.

But if you put that money in a three-year fixed annuity at 2.5% a year, your annual return would rise to $5,000 a year. The difference — $333 a month — can help offset higher fuel, food and clothing costs.

Read: Inflation inequality: Poorest Americans are hit hardest by soaring prices on necessities

Social Security is indexed for inflation, which is good for retirees because it helps offset increases in the cost of living, said James W. Bryan, a registered investment adviser with Cahill Financial Advisors in Edina, Minnesota. But that doesn’t always entirely help.

“Living within your means, following the advice of your physician and dentist, not carrying debt, and earning the best yield available on your bank savings are all critical actions for keeping money in your pocket,” he said.

Many people think their retirement savings is safe if it is tucked away in federally insured savings accounts, certificates of deposit or other investments in which principal is not at risk. But they still face the risk that inflation erodes the purchasing power of their savings. That’s why advisers advocate diversity in investments.

“Holding a well-managed retirement investment portfolio that has a portion allocated to equities is among the best ways to offset inflation,” said Bryan. “Regardless of risk tolerance, a portfolio should have some exposure to equities since they have proven throughout history to be a tremendous hedge against inflation over extended periods of time.”

Risk-averse older adults who are more worried about the volatility in stock and bond markets more than they are about the loss of purchasing power to inflation may look at certificates of deposit. Bryan said some 12-month CD yields have inched above 1.00%, which was not the case a year ago.

More: How can retirees hedge inflation risk?

Series I Treasury bonds may be worth a look

Another option to consider is U.S. Treasury Series I Bonds, which pay both a fixed interest rate for the life of the bond and twice a year add a floating-rate payout linked to the inflation rate. The combined rates on bonds issued from November 2021 through April 2022 was 7.12% in the most recent six months. I bonds earn interest for 30 years but you can cash them in after 12 months. However, if you cash them before five years, you will lose the previous three months of interest.

Another budgeting tactic Bryan likes is creating separate savings accounts for fixed costs, such as transportation, property taxes and food.

“Having a separate savings for three to six months of living expenses is standard financial advice as well,” he added. “Creating separate savings accounts can help one get a better handle on how much is available for discretionary expenses and entertainment.”

If you begin experiencing financial stress from inflation, reduce the burden by making sacrifices necessary to pay down consumer debt and a mortgage and reduce or terminate monetary support to adult children.

“Downsizing residences and being open with the adult children are places to start,” Bryan said. “It’s tough to change old habits. However, the result of those behaviors can be tragic and costly down the road.”

Erin Flynn Jay is a writer, publicity expert and author of “Mastering the Mommy Track: Juggling Career and Kids In Uncertain Times.

This article is reprinted by permission from, © 2022 Twin Cities Public Television, Inc. All rights reserved.

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