New inflation study shows where retirees are feeling pinched

The COVID-19 pandemic pushed inflation in the United States to levels not seen in decades. Increased costs for food, gasoline, housing, and nearly every other necessity squeezed consumers nationwide, effectively negating the value of pay raises for American workers.

For many retirees, however, the pain was especially acute because those on fixed incomes felt the impact of higher prices in both direct and indirect ways, according to a new study from the Society of Actuaries Research Institute and Optimity.

The inflation study, which took place in April of this year, showed a high percentage of respondents (93 percent) not only demonstrated an overall understanding of inflation and its impact on their retirement savings, but it revealed more respondents than not have directly felt the impact of inflation on their finances. As to which areas provided the largest pinch to retiree pocketbooks, food and transportation took the top spots, the survey said.

Meanwhile, most respondents are spending less than or equal to their income due to the inflation spike, with most also indicating they have made adjustments to their spending patterns.

Finally, on the bright side, the study revealed that most respondents believe their budgets will be under control as inflation cools.

Digging into the details, when asked about how they can protect their savings from inflation from among four choices, a high majority of respondents chose maintaining a diversified investment portfolio (94 percent), talking to a financial advisor (94 percent), and continuing to save for the future (89 percent) as strategies they would use. A smaller majority of respondents (54 percent) chose switching from stocks to GICs (Guaranteed Investment Contracts), the study said

Regarding the findings, Charles Failla, founder and CEO of Sovereign Financial Group, says it looks like people are mainly staying the course in the face of higher prices by maintaining a diversified portfolio and consulting with an advisor - exactly as he would recommend they do.

“I would add to this the idea of utilizing cash flow planning to better optimize one's portfolio,” said Failla. “Specifically, I feel one of the biggest mistakes I've seen with portfolio construction is that some investors are either too aggressive or too conservative - both extremes can lead to poor outcomes. If your portfolio is too aggressive and you need to withdraw funds during a correction, you will never regain those losses - this is known as sequence of return risk,” said Failla.

“Conversely, if your portfolio is too conservative, you run the risk of not keeping up with inflation,” said Failla. “In other words, you are protecting your principal, but not your purchasing power. A good way to avoid these extremes is to use ‘Cash Flow Planning’ to better determine how much money you need and when do you need it,” said Failla.

By taking this route, Failla says investors will essentially compartmentalize their funds into "buckets" based on when they need to withdraw the funds.

Elsewhere, the study showed that a majority of respondents (56 percent) reported that inflation in the past 12 months has been an issue for their family's finances. Meanwhile, a minority (35 percent) of respondents did not find it problematic with a smaller minority (9 percent) unsure.

Finally, when asked about their views on whether their budget will be back under control once inflation is under control, a highly optimistic total of 42 percent of respondents either agree or strongly agree, with 18 percent of respondents selecting that it is already under control.

On the flip side, 26 percent of respondents either disagree or strongly disagree, indicating at least some level of concern about the future, the report said.