How rising living costs are affecting retirees


  • Inflation can significantly erode the value of your money in the long run.
  • The rising cost of goods and services impact retirees more than employed people.
  • Balanced portfolio investment is essential for outperforming inflation.

Inflation may not seem to be a topic of relevance for several people, but it does have a huge impact on their financial lives. Inflation is basically a general increase in prices which results in the fall of money’s purchasing power leading to rising living costs.

The worth of every pound in your retirement pot will be influenced by the rate of inflation, and thus, inflation has the power to significantly erode its value. Therefore, it becomes very important to carefully plan your retirement strategy by taking inflation into account to ensure that you have a decent retirement nest egg for a comfortable life in your later years.  

Impact of rising living costs

Inflation affects the standard of living of everyone, but it is particularly more troublesome for retirees as their limited fixed income and savings lose purchasing power over time while the cost of goods and services keeps rising. Unlike employed people, retirees don’t get salaries and the finite resources they own limits their ability to pay higher bills. This in turn, forces them to cut down their expenses and reduce their standard of living to keep up with the number of financial resources at their disposal.

Rising inflation undeniably leads to an increase in the cost of living for all, especially retirees, for whom it becomes difficult to afford even the basic necessities like food, medical expenses, housing, gasoline, and so on. Health care expenses are particularly more important for retirees as older people are estimated to be spending around three times more on their health care as compared to working adults and five times more as compared to children.

Related read: Four pre-retirement moves that can secure your old age

Inflation impact on retirees

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Controlling the impact

Before making a retirement plan, it is important for people to determine the kind of lifestyle they’d want in future as that gives an idea about their expected spending pattern. Following this, the retirement plan can accordingly be formulated while accounting for inflation.

The best time to start building a retirement fund is in the age group of 20 to 40 years when the investors are young enough to take high risks for even higher returns. Despite not having enough money to invest, it will still be quite beneficial for them to make small investments into a pension or a tax-friendly ISA, which can eventually provide significant gains. With age and changing priorities, the investment strategy of people also changes. Thus, while people are employed, they have to play the game of financial balance to take care of their present needs as well as plan for their future.

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It is always better to diversify your asset portfolio by adding cash, equities, bonds etc. to it to maximise the long-term risk-adjusted returns. Holding a lot of cash won’t help in case of rising inflation as interest rates on cash are generally well below the inflation rate. The purchasing power of your money can be preserved as well as compounded by investing it judiciously, which can help beat the inflationary effect in the long run.

The spending power of your money won’t be lost if the growth of your retirement income and savings is in line with inflation, but your real returns may become negative in case it is less than inflation. Thus, keeping your savings in a bank account may not be a good idea as the value of that money can be eroded in the long run, with inflation rates being above the bank interest rates. Thus, the right portfolio investment is essential for outperforming inflation.

To keep up with inflation and rising living costs, retirees must have a well-balanced portfolio comprising of both safe assets, like property, and risky assets, like stocks and bonds, which together offer returns high enough to have a secure life in post-retirement years.

Summing up

Rising living costs due to inflation can have an influence on your ability to live a comfortable life during your retirement years. Inflation can be beaten by those who take the time to formulate a plan to beat it. Your savings can be preserved from the blow of inflation by developing a realistic retirement plan and investing in a balanced portfolio.