“Retirement is like a long vacation in Las Vegas. The goal is to enjoy it to the fullest, but not so fully that you run out of money.”
Jonathan Clements is spot on with this quote—yet inflation is unfortunately making it challenging for retirees to afford and enjoy the retirement they dream of.
The cost of living in the United States has been rising steadily for years, with a rapid climb beginning in 2020. Inflation happens when dollars lose purchasing power as prices surge, and it’s having a measurable impact on Americans’ wallets. In January 2023, the typical consumer would have had to spend $395 more a month to purchase the same goods and services bought a year ago.1
How is inflation impacting American retirees?
For many retirees, rising prices are creating a gap between their planned income and what they require to pay their bills. Some retirees risk running out of money if their living expenses rise higher than the income that their retirement savings can sustainably generate.
Inflation is causing many retirees to feel concern about their ability to cope financially. In fact, according to a study from our parent company, CNO Financial Group, 68% of Americans have concern that they have not saved enough for the life they planned in retirement, and 76% have concern that the rising cost of living will prevent them from enjoying retirement.2
According to the same study, many retirees are making budget changes in response to inflation. For example: 69% reduced spending, 40% cancelled/modified subscriptions, 37% started using coupons, 35% stopped eating out and 34% changed to economy brands.3
While budget adjustments are important in helping close the inflation income gap, some retirees will benefit from a strategy that goes further to protect their savings and grow the amount of income available to them.
Inflation makes it difficult to live on a fixed retirement income, but annuities present a solution that can help retirees accumulate money for retirement, protect what they’ve saved or turn their retirement savings into an income stream.
An annuity is a contract between a retiree and insurance company. The retiree funds the annuity, either with a lump sum of money or through regular payments. The contributions generally earn a tax-deferred rate of return as they accumulate. Then, during the payout phase, which may begin immediately or after a period of time, the retiree receives annuity income payments from the insurance company.
Let’s explore four ways annuities can help retirees hedge against the rising cost of living:
- PRINCIPAL PROTECTION: The money a retiree pays into in an annuity is always safe from market loss.
- GROWTH POTENTIAL: Annuity principal grows tax-deferred through regular contributions, investment returns on a linked index and/or interest on the principal amount, depending on the type of annuity chosen. Annuity growth can help retirees keep up with the rising cost of living.
- STEADY INCOME OPTIONS: Annuities can provide retirees with steady income. They’re one of the only savings vehicles that can guarantee payments for life.
- BENEFICIARY-FRIENDLY MONEY: A death benefit paid to beneficiaries avoids probate in most cases and can help protect loved ones from future inflation increases.
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Insurers and their representatives are not permitted by law to offer tax or legal advice. The general and educational information here supports the sales, marketing or service of insurance policies. Based upon individuals’ particular circumstances and objectives, they should seek specific advice from their own qualified and duly-licensed independent tax or legal advisors.
1Bankrate, Prices are still uncomfortably high—here’s what inflation is and what causes it, https://www.bankrate.com/banking/federal-reserve/what-is-inflation/, May 2023.
2CNO Financial Group, Helping Consumers Navigate Economic Uncertainty, 2023, p. 17.
3Ibid., p. 18.