Smart Ways Older Adults Can Protect Their Money from Inflation

Key Takeaways 

• Inflation is a sustained rise in prices that reduces money’s purchasing power. 
• Changes in the rate of inflation are measured by the Consumer Price Index. 
• Inflation makes everyday purchases more expensive and erodes the value of savings. 
• Inflation indexing is adjusting wages, taxes, and benefits to keep pace with rising prices. 
• People can counteract higher priced items by increasing income and reducing expenses. 

Inflation is a decline in purchasing power over time. When prices rise, currency (e.g., U.S. dollar) buys fewer goods and services. High inflation is concerning for all Americans but especially for older adults living on fixed incomes. 

To fully understand the impact of inflation, let’s apply the Rule of 72, which calculates the number of years it takes for a sum of money to double. Simply divide 72 by an assumed inflation rate. Between 1926 and 2024, the average annual inflation rate was 2.9%. Rounded off to 3%, retirees’ expenses at age 62 will be double around age 86 (72 ÷ 3 = 24 + 62 = 86). 

Inflation is measured using a government metric called the Consumer Price Index (CPI). The CPI tracks changes in the prices of a “basket” of goods and services (e.g., food, housing, healthcare) over time and is updated monthly. 

This article describes inflation “stickiness,” negative inflation impacts, inflation-indexing, and dozens of strategies to counteract inflation via reduced expenses and increased income. 

Inflation Stickiness 

A good word to describe inflation in recent years is “sticky.” Stickiness refers to the persistence of inflation once it takes hold and how slowly inflation adjusts to economic changes such as interest rates and supply and demand. Inflation occurs when demand for goods and services exceeds production capacity and when higher production costs, including labor, increase prices. 

Negative Inflation Impacts 

Sustained high inflation has many negative impacts that affect older adults including: 

• Higher prices: Everyday purchases become more expensive 
• Savings erosion: Low-yielding cash accounts lose real (after inflation) value 
• Bond impacts: Fixed payments and the return of bond principal lose real value 
• Pension impacts: Without a cost-of-living adjustment (COLA), pension income buys less 
• Higher borrowing costs: Interest rates typically rise, making credit more expensive 
• Reduced housing affordability: Costs for rent, mortgages, and property taxes increase 
• Insurance premiums. Health, long-term care, and property insurance premiums rise 

Inflation Indexing 

If anything positive can be noted about inflation, it is inflation indexing. This is the practice of adjusting wages, taxes, and benefits such as Social Security to reflect changes in the cost of living. Indexing is done to maintain the buying power of income sources and to avoid “bracket creep,” where people are pushed into a higher tax bracket without any growth in real income. 

Below are situations where older adults benefit from inflation indexing: 

• Social Security COLA: Based on a CPI index for July, August, and September of each year 
• Social Security earnings test: Determines whether benefits are withheld for early retirees 
• Federal and state pension COLAs: Pension program adjustments including CSRS and FERS 
• Medicare Part B and D premiums: Standard Medicare premiums and IRMAA for high earners 
• Senior standard deduction: Two extra deductions for seniors on top of the regular amount 
• Tax bracket thresholds: The income ranges for each of the seven income tax rates 
• Estate tax exclusion: Estate value that can be passed on to heirs free of federal estate tax 

Expense Reduction Strategies 

Housing 

Moving to a smaller dwelling with a lower rent or mortgage, utility costs, insurance premiums, and property taxes is one way to reduce housing costs. Another is refinancing when the cost is less than the amount of interest saved. Use an online calculator to make cost projections. 

Utilities 

A powerful cost-cutting method is temperature control: turning the thermostat down in the winter months and up in the summer. Other cost-saving steps include turning down the water heater, unplugging idle items with a power strip, sealing air leaks, and using LED lightbulbs. 

Groceries 

To save money, make recipe substitutions (e.g., applesauce for eggs), buy store brands, eat meatless meals, use coupons and grocery shopping apps, stock up on sale items (e.g., BOGOs), cut out high-cost “junk food” snacks, and join supermarket rewards programs. 

Eating Out 

A good savings mantra is “rethink your drink” by ordering tap water instead of a beverage. Other tips: share an entrée and/or dessert, eat an appetizer as a meal, take advantage of 55+ menus and early bird specials, select BYOB restaurants, and take leftover food home for another meal. 

Car Payments 

Ways to decrease loan costs include negotiating a lower purchase price, setting up automatic loan payments, making a large down payment to borrow less, and buying a less expensive car. 

Gasoline 

Driving less by consolidating errands will save money. Other tips: join a fuel rewards program, pay for gas with cash (some locations), check tire pressure regularly, and reduce idling. 

Travel 

Money-savers include hotel and airline rewards programs, staying at hotels with free breakfast, traveling with snacks and beverages on road trips, and taking daycations and staycations. 

Clothing and Home Furnishings 

Sales, store coupons, and rewards programs are big money savers, as are gently-used thrift and consignment store clothes, small appliances, furniture, electronics, home décor, and more. 

Insurance 

A review of coverage with an insurance agent may uncover ways to lower premiums (e.g., policy discounts). Paying premiums less frequently via auto-pay or online may also save money. 

Health Care  

Annual checkups and screening exams can identify issues before they become costly. Other ways to save on health care expenses include maintaining a healthy lifestyle, using generic drugs and in-network providers, 90-day prescription refills, and free health fairs and public programs. 

Taxes  

Tax-saving ideas include claiming the extra standard deductions for taxpayers age 65+, strategic RMD withdrawals and Roth conversions to stay in a lower tax bracket, taking state-specific tax breaks (e.g., senior property tax reductions), and relocating to a state with no state income tax. 

Community Resources 

Free public services save money on items you would otherwise have to pay for. Examples include rabies clinics for pets, outdoor concerts and festivals, public parks and libraries, food pantries, shuttle services for seniors, tax filing assistance, senior centers, and meal programs. 

Other Money-Saving Ideas 

Below are three more ways to save money:  

1. Follow the Rule of Three by comparing at least three providers of goods and services. 
2. Ask for discounts with phases like “What flexibility is there on the price?,” “How can we make this more affordable?,” and “What is the best deal that you can make for loyal customers?” 
3. Review all automatic payments and end those for services that are rarely used. 

Income Generation Strategies 

Increased Interest on Savings 

A high annual percentage yield (interest) on an insured bank account is a must. On a $10,000 deposit in one year, at a 0.05% APY you’d earn $5. At 4% interest, you’d earn $400. After ten years, the 4% account would earn about $4,800  vs. about $50 for the 0.05% account, or nearly 100 times more! 

Income-Oriented Investments 

Dividend-paying stocks can provide a steady stream of income and potential investment growth. Examples include blue-chip stocks, utility (e.g., electric, gas) company stocks, and preferred stocks. A laddered portfolio of bonds and CDs can also provide a steady stream of income. 

Cash-Back Credit Cards 

With money set aside to pay credit card bills in full, charge as much as you can (e.g., utilities, insurance, food, etc.) to earn as much tax-free income as possible. For example, if you have a 2% cash-back credit card and charge $50,000 in a year, you’ll earn $1,000 to fight inflation with. 

Part-Time Employment 

Workers age 75+ are expected to be the fastest-growing age group in the U.S. labor force through 2030 and into the next decade. Income from a job can help claw back the purchasing power that inflation has stolen away (e.g., earning $5,000 to replace $5,000 in additional living expenses). 

Downsizing: Selling Real Estate 

Geographic arbitrage (moving from a high-cost to low-cost state) and making a profit on real estate often produces a lump sum that can be invested to provide income to offset the effects of inflation. Example: A $100,000 home sale profit invested at 6% will earn about $6,000 annually. 

Downsizing: Selling “Stuff” 

Selling unused items is another great way to earn “claw back” cash. Good places to sell items are community garage sales and flea markets, online marketplaces like eBay and Facebook Marketplace, consignment shops, and local classifieds. 

Final Thoughts 

Inflation erodes the purchasing power of money, making everyday goods and services more expensive. However, there are many inflation-fighting strategies to compensate for higher prices. Pick those that are most relevant to you and develop a personal inflation-fighting plan.