It’s no secret the prices of goods and services have increased over the years. In fact, you’ve undoubtedly seen this change for yourself while strolling through grocery store aisles, booking travel plans, or paying household bills. Unfortunately, your income may not have kept up with the same rate of increase – inflation, that is.
Inflation is the measure of how quickly the prices of goods and services are increasing, directly related to changes in supply and demand. When goods and services are in high demand, and especially if supply has decreased, sellers and manufactures react by raising prices.1 Dips in supply can come from a number of causes, including natural disasters and pandemics. And while few things in the market are certain, you can count on inflation rates, and subsequently, the costs of common goods, to fluctuate over time. Just check out the average prices of some common goods – both today and 25 years ago!2,3
|Gallon of gas
|Loaf of bread
Data: The Numbers | Nash Information Services, U.S. Bureau of Labor Statistics
In general, inflation equates to higher costs. But, is inflation always bad news? No! The US government, alongside most other countries, actually targets a low rate of 2-3% of inflation per year in order to keep spending at healthy levels for the economy.1 But, at higher levels it can become burdensome, particularly when wages can’t keep up with the rate of inflation and consumer spending power decreases. And for retirees adjusting to a reduced or fixed income, these rising costs have the potential to be especially crippling.
A good measure of inflation is the consumer price index (CPI). Each month, the CPI measures the cost of a sample of goods and services and shows the rate of increase or decrease in comparison to the previous prices.1 However, it’s worth nothing that not all sectors of the economy experience changes at the same pace. Let’s look at some different sectors and spending areas that are most impacted by inflation.
Over the past year, prices in the travel industry have shifted dramatically. According to the U.S Department of Labor, rental car prices shot up 24% in a year from last February.4 Furthermore, travel restrictions loosening at the end of the COVID-19 pandemic meant that demand for airline tickets rose dramatically, causing an increase in prices as well.4 If you’re planning a trip, the price will depend on a number of factors such as seasonality, trip duration, and distance to the destination. This can make it hard to compare yourself to the average traveler as each trip can vary in a number of significant ways. Because travel is often considered a luxury or non-necessity, it may be one of the first expenses you cut when trying to reduce spending. But it doesn’t necessarily have to be! Taking advantage of deals based on seasonality shifts or even days of the week can make travelling more affordable.
Whether you’re grocery shopping or indulging in your inner foodie while dining out, you’ve likely experienced changes in food costs. While grocery costs have increased in recent years due to rapid increases in inflation, thankfully, the slowing of inflation over the past year has resulted in grocery prices cooling a bit in comparison.5 From September 2022 to September 2023, food prices rose 3.7%. While this is still an upward change, the good news is that these prices are down from 11.2% over the same period the previous year.5 If you’re looking to cut costs on food, there are a few ways to do so. You may look for bargains in the grocery aisles, prepare more meals at home, or take turns hosting friends and family for gatherings as an alternative to dining out.
As illustrated in the above chart, even the price of a movie ticket has increased over time. And that’s not all! When it comes to entertainment, sporting events continue to be an added luxury, with NBA and NHL tickets costing roughly $94, and NFL sitting at around $151 per ticket according to 2022 SeatGeek Data.6 Fortunately, there are plenty of ways to enjoy entertainment locally without breaking the bank! These include enjoying free admission days at museums or zoos, strolling through markets or fairs, and playing games with friends. You can also find additional ways to save big with senior discounts!
While the ideals of the American Dream are built upon owning a home with a white picket fence, the reality is that doing so today comes at a significant cost. Just 25 years ago in 1998, the average home cost in the US was $181,150. Today, in 2023, the average US home price has skyrocketed to $504,150 – that’s an increase of over 178%!7 In addition to general inflation, another key factor influencing the affordability of homes today is mortgage interest rates. The higher the rates, the more difficult it could be for people to afford homes. And interest rates also impact the amount of your monthly mortgage payment. But monthly mortgage payments are not the only cost that should be factored into budgeting for housing. Other considerations include the household expenses you’re faced with such as utility bills and home repairs. These too, are subject to inflation.
Preparing for Continued Rising Costs
In confronting inflation and preparing for continuous rising costs, the first thing to do is to take stock of your current finances. This includes assessing all of your sources of income, such as Social Security benefits, pensions and retirement accounts, and different investment portfolios.
It’s also smart to account for your savings and assets, as well as liabilities and regular costs and payments you are responsible for. Understanding the full picture of your financial status can help you best budget your resources and plan for inevitable price increases. Establishing smart money moves and remaining knowledgeable about the economic landscape in your region will put you in an excellent position to keep up with rising costs.
Once you’ve fully assessed your financial situation, you’ll be well informed and ready to create a long-term budget to weather the impacts of inflation. But if you find that you could use some additional cash flow, there is another solution – tapping into home equity with a reverse mortgage.
As previously noted, housing is often a significant spending category for retirees. But did you know that it may also be your biggest source of wealth? With today’s seniors accounting for over $12 trillion of home equity, you may be surprised to find out how much wealth is built up in your home.8 And with a reverse mortgage, you can convert a portion of this equity into cash without selling your home or taking on monthly mortgage payments, as long as you continue to pay your property tax, insurance, and home maintenance costs.
A reverse mortgage also gives you flexibility in how you receive your funds, and one useful option may be to receive funds in monthly installments. This could put you in a great position to increase your spending power to cover some of the price increases brought on by inflation. If you’re interested in learning more about how you can utilize the power of your home, reach out to the Longbridge team today!
Preparation is the key to getting yourself in a great position to take on challenging economic times. It is important to understand that there are a number of financial tools available to help you out in tough times, and to help you prepare for the future. Creating a balanced financial plan can allow you to take on any future challenges with confidence while reaping the benefits of your hard work!