How You Can Make Headway Against Inflation, With or Without Social Security’s Help

Social Security hasn't kept up with inflation. Here are some ways to limit your rising expenses in retirement.

Author:
Retirement Daily Guest Contributor
Publish date:
Oct 6, 2021 8:00 AM EDT

By Chris Orestis

The last decade has not been particularly kind to the wallets of those who depend on Social Security to keep their financial lives on track.

Annual cost-of-living allowances (COLA) failed to keep up with inflation, meaning the monthly Social Security benefit of 2021 doesn’t pack the same buying power as the one from, say, 2011. Seniors deserve a raise and perhaps help is on the way.

Social Security recipients could see an upward adjustment of over 6% in 2022, a raise that comes none too soon. That significant bump in the electronic payments that find their way to recipients’ bank accounts could provide some “catch up” for those who saw their annual increases keep coming in below what inflation was doing to the value of the dollar.

Getting Social Security back on pace to keep ahead of inflation is critical for seniors trying to keep their financial heads above water. Compounding many people’s struggles is the fact that low interest rates have also prevented them from getting any kind of decent returns for savings they may have put away in money management accounts, CDs or bonds, which also have not kept up with the pace of inflation.

For years, Social Security recipients watched with chagrin as their thin annual increases lost that continuing battle with inflation. Since 2010, their monthly payments have been adjusted nine out of 11 years at an average rate of 1.6%.

In those same years, the cost of living rose an average of about 2% annually. So, with each year, the gap grew a little more.

The 2022 increase, which will be announced in October, will go a long way towards helping seniors make up for over a decade of living underwater. But that increase alone won’t fix everything for older Americans struggling to make ends meet.

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There are financial strategies, though, that can help in the never-ending war that retirees wage against inflation. If you are a retiree facing this struggle, here are a few things you can do so that rising prices don’t completely undermine you:

Pay attention to Medicare Open Enrollment from Oct. 15 to Dec. 1. This is when everyone on Medicare can make changes to their plan, so make sure you have the right prescription drug coverage through your Part D formulary, and if not, make the right switch. Enrolling in a Medicare Advantage plan can provide out-of-pocket spending caps as well as benefits traditional Medicare does not offer, such as dental, vision and hearing.

Delay claiming Social Security benefits. Social Security eligibility starts at age 62, but the longer you wait to enroll up to age 70, the more your monthly payments will be. The financial impact of what age a person starts taking their monthly benefit is significant. For example, in 2021 a person who retires having paid the maximum contributions into Social Security would receive $2,324 monthly if they started at age 62. But that amount would be $3,895 if they waited until age 70.

Adjust your spending habits. It makes sense that you want to finally enjoy your money after a lifetime of saving, but it’s important to be smart about it. People need to be even more careful with their money in retirement than they were in their working years. Here’s just one example of how doing so might play out: Suppose you routinely buy a new car as soon as the loan on the old one is paid off. Now would be a good time to change that habit. Let’s say the monthly payment on the new car would be $400. If you postponed the purchase for two years, you would save $9,600.

Refinance your mortgage. With interest rates still low, this could be a good time to consider refinancing your home loan. Careful study is required, though, before making a move. Get at least three quotes, compare rates, terms and potential penalties to ensure you are getting the best deal.

Get a home energy audit. Energy costs go up just like everything else, but there are ways to reduce your home’s energy use, which is one way to keep that monthly bill in check. Many providers offer in-home energy audits where a representative comes to your home, completes a thorough inspection, and provides a report detailing ways you can save. I did one several years back and reduced my energy bills by roughly 30%.

Start paying down credit card debt. No matter the level of credit card debt you have, it’s important to start paying it down. The monthly interest paid on a credit card is money thrown away for everyone except the credit card company. If you have trouble disciplining yourself, stick to this simple rule: “If you can't afford to pay it off by the end of the month, you can't afford it.”

Take advantage of senior discounts and membership organizations. Many businesses give older Americans a break on prices for everything from a haircut to a fast-food meal to a seat on an airplane. Groups you can join such as AARP or AAA are also a great resource for services and member-only discounts. Unfortunately, many people don’t take advantage of these opportunities and discounts as often as they should. In many cases that could be because it just doesn’t occur to them, or it may be because they have a hard time thinking of themselves as seniors. Even if a business doesn’t advertise a senior discount, you should always ask.

For retirees to start getting ahead of the never-ending march of inflation, a Social Security COLA increase based on economic reality will be a sea-change from what they have experienced over the last decade.

But you also need a plan beyond that. With a little smart money management, inflation’s insidious effects can at least be diluted if not eliminated.

About the author: Chris Orestis

Chris Orestis, CSA, is president of Retirement Genius (www.retirementgenius.com), and is a nationally recognized financial, health/LTC, and retirement issues expert. He has over 25 years’ experience in the insurance and long-term care industries and is credited with pioneering the Long-Term Care Life Settlement over a decade ago. Known as a political insider and senior issues advocate, Orestis is a former Washington, D.C. lobbyist who has worked in both the White House and for the Senate Majority Leader on Capitol Hill. In 2007 he founded Life Care Funding, and in 2017 he founded the LifeCare Xchange.

Chris Orestis is author of the books Help on the Way and A Survival Guide to Aging-- with a third book Retire Like a Genius to be published in 2021. He has been speaking for two-decades across the country about senior finance and the secrets to aging with financial and physical health and dignity. In 2019, Chris was named one of the twenty most innovative people in the life insurance industry by the National Association of Independent Life Brokerage Agencies (NAILBA). He has appeared in The New York Times, The Wall Street Journal, CNBC, NBC News, Fox News, USA Today, Kiplinger’s, Investor’s Business Daily, AARP, PBS, and numerous other media outlets, is a frequent columnist for NewsMax Finance, Broker World, ThinkAdvisor, IRIS, and has been a guest expert on over 50 radio programs and TV appearances.