How inflation may be impacting your retirement
Inflation is on everyone’s minds these days. In fact, the public views inflation as the top problem facing the United States—and no other concern comes close!1
It’s not surprising when you consider how much prices have gone up. According to the U.S Bureau of Labor Statistics, consumer prices were up 9.1% year over year as of June 2022, the largest increase in 40 years. Over the same period, prices for groceries rose 12.2%, energy prices rose 41.6%, gas prices increased 60.2% and electricity prices rose 13.7%.2
With price increases like these, inflation is impacting people of all income levels and age groups. Whether you’re saving for retirement—or you’re already retired—keep reading for information on how inflation is impacting you.
How inflation is impacting retirement savers
The Internal Revenue Service (IRS) announced higher 401(k) and IRA contribution limits for 2023. These contribution limit increases are based on the inflation rate—and are the highest we’ve ever seen. Here are some highlights, and you can review the full set of IRS adjustments in Notice 2022-55:
- Workers under 50 years old can contribute up to $22,500 pretax to a 401(k) or similar retirement savings plan in 2023, a $2,000 jump from the former limit.
- Workers 50 years or older can save up to $30,000, a $3,000 increase, which includes a $7,500 catch-up contribution, up from the previous $6,500 catch-up.
- Limit contributions to a pre-tax or Roth IRA are now $6,500, up from the previous $6,000 level.
- Those who are 50 and older can make an additional $1,000 catch-up contribution to an IRA.
- The maximum contribution an employee can make to a Simple IRA Plan (a retirement plan for small businesses) is now $15,500, up from $14,000.
These contribution limit increases are good news for workers, but at the same time, inflation has made it more challenging than ever to balance paying for essential expenses and saving for retirement. Many people have paused their retirement savings and don’t plan to restart until things feel more normal, which can negatively impact long-term financial health. But by controlling your spending and stretching your dollars, you can work to balance spending and saving—and maybe even find room in your budget to take advantage of these increased contribution limits. Check out our Inflation Busters: Tips for Stretching Your Dollars for ways you can save as much as possible on purchases, as well as our tips on How to Plan for Inflation in Retirement.
How inflation is impacting retirees
More than 70 million Americans depend on Social Security benefits. In response to inflation, the Social Security Administration (SSA) boosted its cost-of-living adjustment (COLA) for benefits checks in 2023, which means seniors and others will receive extra money to help offset the challenges of inflation. Here are the key details:
- Beginning in January 2023, benefit checks will rise 8.7%, the largest increase since 1981. The 8.7% increase will amount to a $146 increase in monthly benefits for the average retired working on Social Security. This means:
- The average check for retired workers will increase from $1,681 to $1,827.
- For a couple with both partners receiving benefits, the estimated payment will increase from $2,734 to $2,972.
This extra income is great news for retirees, but Social Security isn’t meant to be the only source of income for people when they retire. Inflation will still make it challenging for many retirees to make ends meet. Check out our tips to save and generate income in retirement for inflation busters that can help you offset the impact of inflation.
We’re here for you!
Whether you’re saving for retirement—or you’re already retired—inflation can put a strain on your retirement plans. But you don’t have to figure it out alone. We can answer your questions, review your portfolio and help you create a retirement plan that can stand up to inflation. Call us at (844) 553-9083 or click here to get started.
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1Pew Research Center, By a wide margin, Americans view inflation as the top problem facing the country today, https://www.pewresearch.org/fact-tank/2022/05/12/by-a-wide-margin-americans-view-inflation-as-the-top-problem-facing-the-country-today/, May 2022.
2U.S. Bureau of Labor Statistics, Consumer prices up 9.1% over the year ended June 2022, largest increase in 40 years, https://www.bls.gov/opub/ted/2022/consumer-prices-up-9-1-percent-over-the-year-ended-june-2022-largest-increase-in-40-years.htm, July 2022.