Most Americans worried that Social Security benefits won't keep up with inflation: AARP survey
Here's how retirees can protect themselves from inflation
Most Americans said they are worried about inflation's impact on Social Security benefits, yet many also said they hadn't done much financial planning for retirement, according to a recent AARP survey. (iStock)
Many Americans are worried that their retirement savings won't keep up with inflation and doubt they'll be able to make ends meet with Social Security retirement income, according to an AARP survey.
The vast majority (90%) of respondents who are already drawing Social Security retirement benefits, or will soon receive them, said they are concerned that their benefits may not keep up with inflation.
Among the respondents currently planning their retirement, 40% said they worried "a lot" and 32% said they worried "somewhat" about how inflation will impact Social Security.
Despite these concerns, many Americans said they haven't done much financial planning for retirement.
Nearly half (47%) of the respondents said they needed to be more proactive with calculating their future Social Security retirement benefits on a yearly basis. Only 54% said they've completed planning for their retirement life and 28% haven't done so "despite wanting to or knowing they should," the survey said.
Additionally, just 45% of eligible respondents reviewed their earnings history on the Social Security Administration's (SSA) website in the last three years.
"Reviewing expected Social Security retirement benefits falls low on the list of annual financial activities, resulting in an important missed opportunity to plan for their future financial security," the report said.
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Social Security's inflation adjustments may not be enough, experts say
High inflation has spurred a decades-high benefits increase for Social Security recipients in 2023.
The SSA announced that benefits will increase by 8.7% in 2023 based on the cost of living adjustment (COLA), which factors in inflation. This means that starting in January, the average Social Security recipient can expect an additional $140 each month.
However, one retirement benefits expert said the adjustment is unlikely to significantly help people who rely on these funds as their only or primary source of income.
"It is becoming very expensive to retire in America," Ari Parker, a Medicare expert and author, said. "While people can expect to receive more in their Social Security checks, there is no doubt these funds will not be enough to help them retire comfortably in their later years. "
Devin Carroll, the owner and lead adviser at Carroll Advisory Group, said that while the COLA provides relief for seniors facing higher prices, it may not accurately reflect how inflation impacts individuals.
"The measured inflation rate is often different than the experienced inflation rate," Carroll said. "For example, the index used to calculate the annual COLA factors in a nearly 40% weighting to housing. The remaining 60% of the index is split up between transportation, food and beverages, medical care, recreation, education and communication, apparel and other goods and services.
"In a year where housing costs stay low, but the remaining categories increase, the index can give a lower rate of inflation than many people actually experience," he continued.
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IRS RELEASES INFLATION ADJUSTMENTS FOR 2023 — HERE'S HOW IT COULD IMPACT YOUR TAX BIL
How inflation should factor into retirement planning, according to experts
High inflation is something that Americans who are either currently retired or preparing to retire in the next five years need to watch, one retirement adviser said.
"For over a decade, we've seen very tame inflation and while social security payments will continue to adjust to meet increased inflation, that alone may not be enough," Scott Sturgeon, a senior wealth adviser and the founder of Oread Wealth Partners, said. "It opens the door to more planning opportunities and ensuring that as you prepare for retirement, you're factoring in a variety of different outcomes and making sure you're prepared for whatever gets thrown at you."
Here are some expert tips to help protect your retirement plans from the impact of inflation:
Reduce the risks of unexpected bills
Parker suggested that Americans could leverage Medicare, the federally-funded health insurance program, to offset rising costs.
"Medicare offers a wonderful savings program for aging seniors," Parker said. "But, be diligent and do ample research to make sure doctor visits and prescription drug costs are fully covered under any given health insurance plan.
"Too many Americans fail to take this precaution and are hit by an unexpected bill that wipes out their cash flow and savings in the years to come," Parker continued.
Assess your cash flow
Americans who are facing a financial shortfall could make ends meet by increasing their income or reducing their expenses, Joe Buhrmann, a senior financial planning consultant at eMoney, said.
Opting for solutions like part-time work in retirement is one way to shore up your income and protect against potential shortfalls, Buhrmann said. Other options that can help increase income are taking out a reverse mortgage or a lifetime income annuity, he added.
"Market volatility, inflation, and health care needs during retirement underscore the need for working with a financial planner who utilizes technology to deploy a holistic planning approach and helps clients assess income needs, provide resources, and share guidance on how to overcome shortcomings," Buhrmann said.
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