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I’M IN THE HABIT of checking my investments every day. Since I consolidated them into one Fidelity Investments’ account, it’s easy to see the impact of market movements on everything I own. I don’t depend on my investments for income, but it still shakes me up when I see big drops, especially several days in a row.
If market gyrations affect me, what must they do to retirees who depend heavily on their investments for income? I posed that question on a retirement planning Facebook group: “If you are now retired or very close to retiring, have the recent stock market gyrations plus inflation shaken your confidence in your retirement financial plan?”
To my surprise, only a handful of responses showed any concern. Most folks displayed remarkable confidence: “Our plan accounts for all this.” “Our plan is solid.” “Our plan is pretty well protected against market and inflation risk.” “Market correction is expected and planned. My portfolio is fully diversified.” “No. One quarter of poor stock market performance following the best year in ages and several strong years in a row does not shake my confidence in the least.”
Perhaps I’m the one who is too fiscally conservative. But I’m also thinking these folks, who take the time to discuss retirement issues on Facebook, aren’t typical.
There’s another world out there, those Americans with little or no investments to worry about and for whom inflation is a far greater concern than what the S&P 500 does next week. Only slightly more than half of Americans own stocks, including in retirement plans.
Rick Delaney, chairman of the Senior Citizen League, which is lobbying for a onetime $1,400 check for seniors, says the group has heard from thousands of seniors who have “exhausted their retirement savings, started eating only one meal a day, started cutting their pills in half because they can’t afford prescription drugs. [These are] just a few of the drastic steps so many have had to take because of what inflation has done to them.”
What’s the truth? Research looking at the impact of inflation found that Americans age 65 and older were affected the least. Because of inflation, seniors find themselves spending an additional $194 per month, while those ages 45 to 54 were spending $305 more. Still, if you’re living mostly on Social Security, having to spend an extra $194 can be a big hit.
If you are living mostly on Social Security than most of your income is indexed to inflation. Seems to me that in this case inflation isn’t much of an issue.
On the other hand, those who depended on a fixed pension to cover a significant part of their basic expenses have a very real problem with inflation. Same for those who depend on their investments to cover basic expenses.
True it’s not actually fixed income. However, an increase of 5.9% on the typical SS benefit for anyone retired a number of years is about 83.00 and from that subtract the Medicare Part B premium increase of $21.60. If the research above is anywhere close to accurate that retiree has fallen about $160 behind.
I was stunned by the opening paragraph of
The post.
As I recall, you had no sympathy for retirees
complaining about high IRMMA costs, which
could affect long term resiliency of retiree
portfolios which have to cope with the twin
evils of financial repression and inflation.
Being affluent at 70, as I said at the time,
does not insure affluence at 80 or 85.
But even though you are not dependent
on your portfolio, the volatility “shakes you
up”.
I see a lot of tension between these two
positions.
Not sure why you see that. I doubt anyone likes to see their investments decline. But as you see in the post, I was comparing myself with those who truly have justification to be concerned.
I don’t think IRMAA folks deserve sympathy that’s true. Especially when you compare their income with the great majority of retired Americans. The initial IRMAA income for a single retiree is about $20,000 more than the median household income in the US. Only about 7% of those 65 plus pay IRMAA premiums. Given the IRMMA premiums adjust with income each year there is a fairness there.
Neither Medicare nor Social Security are being paid for, we haven’t seen the behinning of higher taxes – probably aimed at the “affluent” yet to be defined.
We have been retired for 11 years. I have a non COLA pension and we both have SS. So far, we have managed to live very comfortably on my pension and our SS. We have only used savings for a major home improvement project. But that is because inflation has been low until the past year.
Inflation has always been the greatest threat to seniors like us. Sustained high inflation will erode the purchasing power of my pension and force us to use our savings. People like to complain about inflation, but I am not sure if many seniors understand the threat of sustained high inflation to their well being.
The greatest threat to retirement if longevity, which of course includes inflation.
I am In the same place as you are living on a fixed pension and SS. However, I have set my investments to deal with inflation when and if necessary. I have been reinvesting dividends and municipal bond mutual funds interest for years. When necessary I will turn off the reinvesting and generate additional income – most tax free.
i also didn’t retire until my pension and SS met my goal to replace 100% of my base income – not total income. That gave me and still gives me a cushion.
If, as an individual, you’re not spending a lot on energy, new homes, cars, or hired labor, today’s inflation is still quite muted.
PS: That SC League proposal is just a plain old money grab. If a SS recipient needs extra cash, they should get a job, not rob taxpayers.
“Getting a job” depends on the applicant, in part. If that SS recipient has the problems that many over 75 year olds have, that makes her “unemployable.”
Well, I do think about inflation. I’m 65 and retired I do have a pension and take 4% of my 401k a year out for house projects and emergency cash. My wife collects her SSI. One of the main reasons I’m holding off on SSI is inflation! also my wife will get a bigger check if I pass first.
If the 401k is for emergency cash, why take 4% a year?
Well, why not… Our guaranteed income takes care of all our monthly bills. So, we also have some big-ticket item we do to home and want secure feeling of having cash on hand. I chose 4% because by the time I take taxes out that’s quite a hit. Also divide my age from 90 and look at both numbers. I guess It’s also used as a Bridge to SSI.
That makes sense as the bridge.