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IPFS News Link • Inflation

Inflation Puts More Retirees at Risk of Running Out of Money

•, by Anne Tergesen

The rise in spending since 2021 shows how pernicious inflation can be for those in or near retirement, especially since higher prices can also erode the value of the cash and fixed-income investments many plan to live on in the near future, according to a study Boston College released Wednesday.

"High inflation later in life is often harmful to retirement security," said Laura Quinby, a senior research economist at Boston College's Center for Retirement Research and co-author of the study.

Though inflation has cooled from the 9.1% pace it set for the 12 months ended in June 2022, it remains above the Federal Reserve's 2% annual target rate. Prices rose 3.4% in April from a year earlier, according to the latest Labor Department data released Wednesday, compared with an annualized 3.5% pace in March.

Higher withdrawals are one reason Boston College projects that inflation caused a 14.2% decline in the financial wealth held by middle-income retirees between 2021 and 2025. (If rising interest rates trigger a recession, their wealth would decline 16.6%.)

According to the survey, nearly a quarter of retirees and near-retirees changed their withdrawal rates between 2021 and 2023, boosting distributions by an average of $1,810 in each of those years.

Quinby analyzed both economic data and a November 2023 survey of 1,501 older adults to forecast how high inflation affects the purchasing power and wealth of those in or near retirement.

Retirees' incomes have also taken a hit in inflation-adjusted terms.

While Social Security is increased annually to account for a higher cost-of-living, there is generally no inflation adjustment for the pension income many retirees receive from former employers in the private sector.

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