What a Higher Cost of Living Means for Your Retirement

Hitting Pause on Saving

Last June, the rate of inflation in the US peaked at 9.1% — the highest it’s been in 40 years. While that figure has come down slightly since, total inflation is still clocking in above 6%, driving up the cost of goods.

This dramatic increase in the cost of living is forcing some Americans to forego key expenses, including saving for retirement.

According to a survey from US News & World Report, 50% of Americans paused retirement contributions last year, and over 40% stopped saving altogether, due to the increased cost of living. Meanwhile, many fear they may have to work past retirement, with more than 65% expressing concern over the potential impact cost of living could have on Social Security.

What is COLA?

COLA refers to cost-of-living adjustments for Social Security benefits. When inflation creeps up, Social Security benefits are raised to account for the increased cost of living. In 2023, Social Security benefits increased by 8.7%, meaning the average recipient will receive an extra $140 per month.

While this is a good thing for current retirees, it’s causing younger generations to worry that the Social Security nest egg could be diminished by the time they retire.

Looking Forward

Regardless of the state of the macroeconomic climate, experts recommend continuing contributions to your retirement plan.

Additionally, you can take steps to protect yourself by keeping cash on hand for emergencies, as well as diversifying across different assets. In particular, Treasury Inflation Protected Securities, or TIPS, can help offset the increased cost of living and complement a stock and bond portfolio.

While the short-term economic outlook may appear bleak, current circumstances aren’t necessarily a predictor of the economy in the long term. In the meantime, it’s prudent to keep a cool head — and keep saving.

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