Managing Inflation Surges on a Fixed-Income

If you’ve recently gone to a store, shopped for groceries, filled up your car with gas, or even picked up a prescription at the local pharmacy – odds are, it cost you more than it used to. So, what’s causing this increase in prices and overall sticker shock? In a word – inflation.

As the US economy reopens after post-pandemic lockdowns, demand is surging – and as such, so are prices. In fact, the consumer price index rose 6.2% in October 2021 compared to the same time just last year, marking the largest increase in more than 3 decades1. What’s more, the price of all goods increased 1.2% over the last month as well2.

This surge in inflation may seem all too familiar to those who have witnessed the soaring, double-digit inflation rates of the 1970s. And if you’re worried about these surging rates – you’re not alone.

After years of relatively low inflation, retirees are now understandably concerned about higher prices just about everywhere.

What does this inflation mean for you? And how can you navigate the subsequently higher prices on a fixed income? Let’s start by taking a look at some of the most impacted industries.

Gasoline
Feeling the sting at the pump? Gas prices are now at a seven-year-high, and up more than a full dollar from just last year. According to AAA, the national average price per gallon is now $3.41, with some areas reporting prices upwards of $4.003. A tell-tale sign of a high inflation environment, energy costs are on the rise. Fortunately, there are some ways to save.

Perhaps the most obvious way to spend less on gas is simply by using less fuel. Consider carpooling to local stores with a neighbor or take turns driving with friends or family members. AAA also recommends avoiding wasting gas to warm up the car and cutting down on quick acceleration – which uses more gas. Membership clubs such as BJs, Costco, and Sam’s Club often have lower fuel prices, as do grocery chain gas stations like select Safeway, Kroger, and Walmart locations. Even if your nearest location is slightly further than your regular gas station, the saving potential here adds up.  

Groceries
Sticker-shock at the supermarket? In just the past year, the price of a gallon of milk has climbed 28 cents on average, while a pound of beef is up a significant 66 cents1. With food production often involving crowded working conditions, this industry was decimated last year by the COVID-19 related shutdowns. And as this industry re-establishes its supply chain infrastructure, the result could mean shortages – not to mention higher prices.

Next time you visit the grocery store, look for ways to save on your shopping list. Store brands are often cheaper alternatives to the name-brand items on the shelves, while substituting chicken for beef or other less expensive cuts of beef can cut back on prices. And don’t underestimate the value of sales and coupons! Consumer Reports suggests apps like Basket or Flipp, which feature coupons and price comparisons for different items at stores in your area.

Prescription Drugs
Perhaps the trickiest area to navigate is the price of your prescriptions at the pharmacy. Over the past 20 years, prices for Medicare Part D brand-name drugs have increased more than twice the rate of inflation. And in just 2021, drug manufacturers have driven up prices on more than 900 brand-name drugs – with an average increase of 4.2%4.

Despite these challenges, there are still measures you can take to cut back on your bill at the pharmacy. When available, consider opting for generic versions of your medications. According to the FDA, generic drugs often cost 80-85% less than their name brand alternatives5. You can also price shop your prescriptions by comparing the costs of medications at your local grocery store chains and membership club stores. Websites and apps such as GoodRx and Blink Health can also handle the comparison shopping for you. But keep in mind – there are some cases when certain drugs can cost more with insurance versus just paying for them out-of-pocket. It pays to do your research!

So now that we’ve identified some major impacts of inflation, what can you do to prepare – while on a fixed income? Consider these tips to maximize your dollar.

Adjust Your Budget
The number one rule of budgeting is that your anticipated expenses and allotted savings need to be realistic. While your monthly expenses may have been somewhat constant in the past, you’ll now need to factor in the impact of inflation on essential services and necessities, including food and healthcare. A realistic budget and spending plan can help you keep up with increasing costs and maximize your retirement income.

Take Stock of Your Nest Egg
Start by accounting for your current nest egg. As you assess your savings, be sure to factor in potential inflation over the next 10, 20, and even 30 years. While overall inflation rates will likely eventually level out, this may not be true for some industries. Rising costs in areas such as energy, food, and healthcare have the potential to eat up a large chunk of your income. And the best way to combat this is by planning ahead.

Tap into the Wealth in Your Home
Despite the challenges brought on by rising inflation – there is some good news. Home values are rising, and therefore, so is the wealth in your home. If you own your home and plan on ‘aging in place’ or staying put well into retirement years, inflation could actually be a positive force. The higher your home value, the more home equity you may be able to tap into with a Home Equity Conversion Mortgage (HECM) – commonly known as a reverse mortgage.

According to the Federal Trade Commission, reverse mortgages work by allowing homeowners to convert a portion of their home’s equity into cash without having to sell the home or make regular mortgage payments6. The money received from a reverse mortgage can be used in any way you like after paying off your current mortgage, including to keep more money on hand to pay for everyday bills and meet rising inflation expenses.

For many Americans, their home is their biggest asset, and they one they have invested in the most throughout their lives. In fact, home equity now represents more than two-thirds of total wealth for the average 65-year-old American couple7. Do you know how much is in your home?

While keeping up with inflation can be challenging, especially on a fixed income, anticipating its impact and taking action can help you protect your purchasing power. And if you could use another source of retirement income, consider the wealth in your home.

With senior homeowners in the US now accounting for more than $9.2 trillion in home equity8, you may be surprised at just how much equity is in your home. At Longbridge Financial, reverse mortgages are all that we do – and we can help you use your hard-earned home equity to address the financial challenges that impact so many Americans, like inflation.

We’re committed to recommending the reverse mortgage program only after we make certain the program is right for you and meets your needs. We’ll get to know you, your goals, your home, and your finances as we discuss your options. And you can rest assured that if we ever feel like this is not the best option for you, we will tell you so. Not all lenders make that pledge.

Want to see how much you may qualify for in reverse mortgage proceeds? Run the numbers with our Free Quote Calculator, and for more information, contact the Longbridge team of experts today.

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