The Good, Bad and Ugly of Inflation for Seniors

BOSTON (TheStreet) -- Financial advisers who work with retirees say fear, uncertainty and anger describe their clients' attitude about inflation.

On the immediate level, they are upset that once again, for the second year in a row, Social Security benefits are not offering a cost of living increase.

Inflation can provide seniors in fixed-income investments higher returns, but experts warn that but real return, after inflation and taxes, is what they need to focus on.

Many challenge the assertion that low inflation is the reason -- feeling that rising medical costs only exacerbate the pain inflicted upon those trying to pay for food, fuel and housing on a fixed income. There is also concern that as inflation, by any metric, does increase in the months or years ahead, that their standard of living will decrease along with their buying power and investment returns.

Ron Courser, president of Ron Courser and Associates in Grand Rapids, Mich., says many of his senior clients feel "Social Security is not keeping up with what they need."

"They are really angry at the simple fact that they are not getting a [cost of living] increase at all," he says of those on a fixed income. "For older people, inflation is a different animal. They have to go buy food and they have to go buy gas like us, but they also have higher medical costs. There is a low-grade anger that is always there, and it doesn't matter about the politics. I have the whole spectrum of clients politically, and they are all steamed at the Social Security thing."

Because of periodical readjustments in the weighting of spending categories in the Consumer Price Index, in particular the CPI-W variation used to calculate Social Security COLA increases, cynics and skeptics often question whether the calculations are used to keep inflation rates seemingly low. This "cranks up" the discontent, Courser says.

"I never say inflation is down -- I always say the way they calculate it says it is down," he says.

Inflation, up or down, can be a mixed bag for retirees from an investment standpoint.

Although inflation can provide seniors in fixed-income investments higher returns, that impact may not add up to much, says Tad Fryer, vice president and branch manager for Charles Schwab(SCHW).

"[Retirees and those close to retiring] are sort of punished on the back side of it, because real returns on things like CDs or bonds or any investment are really going to have to factor in inflation," he says. "It makes them appear a little higher, but doesn't necessarily change real return."

Retirees may be pleased to see "bigger checks," but real return, after inflation and taxes, is what they need to focus on.