Inflation has been on a tear in 2021. High rates of inflation hurts retirees and working people. Sources of high inflation include pandemic cash payments, easy monetary conditions by the Fed, supply chain shortages, housing shortages, and people switching to better jobs during the pandemic. The end result is higher food, gas, electricity, healthcare, housing and rental costs, and used car prices. Here’s a chart from the Bureau of Labor Statistics and CNBC. We don’t have the latest info, but we see prices overtaking earnings for the first time in more than 3 years.
How inflation hurts retirees
If you are on a fixed income as a retiree, you can tackle inflation in a few not so great, common ways.
- Reduce expenses, but there may be only so much to cut. A good way is investigating rooftop solar, as we mentioned in Rooftop solar power in Texas.
- Get a part time job with benefits to boost income and reduce healthcare expenses (which is dependent on your health and your spouse’s health for the part time job)
- Tap savings
- Increase asset withdrawals to cover higher expenses
- Increasing asset withdrawals while risk assets are falling, as they are now, may leave retirees with a shortage of money needed in retirement
- As a last resort, retirees may consider moving to a cheaper state or country
Better options include the following.
- Having a side gig to make money. See these two posts from CNBC on enterprising female entrepreneurs. I wish I had their spirit. It’s one reason why I am writing this blog. I always tell my daughters that they will have far more opportunities to earn money outside of a traditional 9 to 5 than their mom and dad did.
- This 26-year-old quit her engineering job to pursue her side hustle full-time—and brought in $170,000 in one year
- This 24-year-old lost her waitressing job. Now she makes $8,600 per month in passive income: ‘I work just 2 hours a day’
- Owning annuities that increase payments every year. This was covered in our post Unlimited Paychecks for Life
- My goal this year is to cover making your assets work harder for you, including long term call options, trading assets with reduced risk, and generating more income from risk assets.
How inflation hurts working people
Working people have the benefit of not having to tap their assets, as their income takes care of them. This allows their assets to take advantage of inflation, helping to soften the blow. They are in a slightly better position but not immune.
Here are things working people can do to fight inflation. Many of the items mentioned for retirees work for this group too.
- Switch to a job with better pay and conditions
- Take on side gigs, such as Fiverr
- Investigate network marketing opportunities
- Work remotely from home, if your field allows it. That reduces gas, maintenance, tolls, and time traveling back and forth to work. It may help reduce childcare expense, which are significant.
- Switch to electric vehicles when possible and affordable
- Before interest rates go up higher, buy a home, as rentals are sometimes now more expensive than owning
- Invest in assets that keep up with inflation, such as commodities and real estate
- Reduce discretionary expenses, such as eating at home versus eating out
- Make a lateral move to a less demanding job, freeing up your time to work on side gigs and learn more. The MIT Sloan Management Review says the ability to move laterally was 12x more effective than offering a promotion and 2.5x more effective than pay in preventing workers from quitting. CNBC: This work benefit is 12x more important than a promotion to keep someone from quitting
- Generate income from your investments, such as interest income, dividends, rental income, and options.
You should position yourself to benefit from inflation or minimize its impacts. Take a look at our retirement worksheet to see the impact of inflation on when you retire and how much you need to retire. I can’t believe it, it’s been one year since that was updated. We’ll work to update that soon and post it here.
I apologize for the delay in writing more content. I had a nasty cold the last three weeks, and members of my family had COVID this past week. I am hopeful of keeping my promise of writing once a week, as I mentioned in the first week of January.
Thanks for reading!