FREE NEWSLETTER
Social media is full of seniors complaining about inflation, the inadequacy of Social Security and its COLAs to keep up.
I was curious. Is that true and what has happened to my purchasing power since retiring in January 2010?
To match the purchasing power of $100 in 2010, you would need approximately $153.15 in 2026.
Meanwhile, $100 in Social Security benefits in 2010 has grown through compounded Cost-of-Living Adjustments (COLAs) to $147.36 in 2026. Not equal, but not that far apart either. The greater portion of total retirement income provided by SS, the closer to matching inflation a retiree is – although I suspect it doesn’t feel that way depending on how adequate Social Security was upon retirement.
The biggest contributor to current prices was the unusually high COVID related inflation during 2021–2022. Inflation has since moderated, but prices generally have not fallen—they’ve simply been rising more slowly.
For the typical family, the largest increases have been: Housing (rent, home prices, property taxes, insurance), Restaurant meals, Hospital and medical services (more accurate insurance premiums), Child care and Groceries.
However, we need to consider that not everyone uses the goods and services in the CPI the same way or at all in some cases.
For example, for seniors buying a home, a new vehicle, child care, tuition even medical care are highly variable. As usual, our Medicare and Medicaid premiums have increased, but our out of pocket healthcare expenses have not despite using hundreds of thousands of dollars in services.
The average Social Security benefit being paid in January 2010 has increased by $595/month. The Medicare Part B premium has increased by $92.40.
Here is an interesting perspective. If I was following the 4% withdrawal rule upon retirement and had investments of $1,000,000 in 2010, what would I be withdrawing in 2026?
I would be withdrawing approximately $61,260 per year in 2026
There are so many variables living in retirement that averages and CPI inflation cannot be applied uniformly, but to me one thing is clear, nobody should retire without a strategy to cope with inflation over several decades. It appears many retired Americans have not planned or considered the impact of rising prices on a surviving spouses income.
I assume your SWR example is supposed to be a backhanded diss of the concept of being confident with an appropriate SWR. But you’ve left out what that $1m starting pot appropriately invested would have compounded to in 16 years. I’d suggest most equity weighted portfolios would have grown more than 53%.
Also you’re 16 years closer to death so the pot simply does not have to last as long now as in 2010.
That in practice is the modern way people end up handling inflation.
I had to look up what SWR stood for. In a former life I was an electrical engineer and it meant something else to me long ago!
No diss of any kind intended. I was, in fact, curious about the impact of inflation because of all the posts I read from seniors.
I have been taking RMDs for twelve years which approximate 4% and my IRA has indeed still grown – over that particular period.
Needless to say, being confident living on withdrawals also depends on the size of the initial fund generating the withdrawals and that the withdrawal rate can cover all planned and unplanned expenses over a retirement or there are other resources to cover unexpected expenses.
I suspect the posts you read from seniors are those that do not really have adequate funds built up in IRAs (or other investment orientated savings) to act as the buffer on top of SS.
The world has however changed and anyone who has retired in the past 10 years (or is coming up to retirement) should be aware of the utility in maintaining equity market exposure as a key part of managing inflation (and other life event) risks.
As has been discussed before SWR is only a tool not the entire answer. If you’re asking how much can I draw from $1m capital then 40k pa (rising with inflation) is a reasonable answer for a 30 year lifespan etc. That does nothing to tell you whether $40k will support your lifestyle and/or leave enough surplus for unexpected needs. Hence why you also need a budget or alternately the discipline to live within the income.
I’d suggest it is wise to at least think about financial strategy in weathering unexpected needs. But it doesn’t need to negate the overall drawdown strategy – for some it might be drawing at only 3.5%, for others maintaining a cash-like emergency fund or being prepared to sell a second