Inflation has many retirees worried about outliving their savings

Susan DeFrance retired two years ago when the truck manufacturing company she worked for phased out her division.

"I was pushed into my retirement," says DeFrance, who's 66. "So it's really very scary."

She's nervous because she felt just on the edge of having squirreled away enough in her life savings. And now, she's afraid that money isn't going to last.

"I am very worried about that," she says. "Milk has gone up like $2 a gallon ... and gasoline."

To cut expenses, DeFrance sold her house in New Jersey and moved to a mobile home park in Delaware, where the taxes are almost nothing. Her one modest splurge in retirement: a used power boat. The park is on a canal near the ocean and has a dock.

"I bought the boat outright," she says. "To make sure my boys come and visit me."

DeFrance is trying to live much more cheaply than she used to, on just $40,000 a year. But even so, she's anxious about outliving her savings. Her eldest son says if it came to it, she could squeeze in with his family.

"They're willing to make these sacrifices for me that I'm not willing to accept," she says. "So hopefully, you know, I won't last to be 100 years old." She jokes that maybe "a nice boating accident" will take care of the problem and laughs.

But she says she really does worry. What if inflation keeps going crazy, interest rates go way up, the stock market crashes and wipes out more of her savings?

"I have a hard time getting to sleep sometimes because all of those things run through my head," DeFrance says.

Many retirees are nervous about the same thing. Inflation is higher than it has been since the 1980s. The higher inflation rate could come back down pretty quickly or be something longer term and more damaging.

"Retirees are in a tough spot," says Darrell Pacheco, a certified financial planner in Charlottesville, Va., who runs a business helping employees make better financial decisions. He says all the focus on inflation makes many people scared.

"And when it comes to folks and their money, we know that high anxiety usually tends to lead us to make bad decisions," he says.

Like panicking and getting out of stocks altogether.

"Your best hedge against inflation is to remain invested," Pacheco says. "Period."

That's because stocks over time have a much higher return than, say, bonds. You can see that right now. While U.S. stocks have fallen some in recent months, overall they're still up more than 10% from a year ago and far more than that over the past few years.

Pacheco says if you already have a responsible retirement savings and investment plan, "stick with your plan."

For those who aren't sure if they're invested properly, Pacheco says everyone should have the right broad mix of investments that are appropriate for their age. One way to do that is to buy something called a target date fund. These can have low fees and automatically adjust over the years to become less risky as you get older.

"Target date funds are incredible vehicles ... one of the best vehicles ever created," Pacheco says. "For many investors, that actually is a great all-in-one option."

That's how DeFrance's retirement account is invested. Her old employer set it up that way. So it turns out she's in pretty good shape. She remembers when the stock market fell very sharply at the start of the coronavirus pandemic — at first she was afraid to even look at the account.

"I remember my son. I said, 'Stand next to me while I open my 401(k) account online,' so I had some kind of moral support, you know?" Then she says she opened up the account and looked. "And we were like, 'Oh, well, we can deal with that. You know, it wasn't as bad as I thought it was going to be."

It's important to remember, too, that Social Security payments adjust with inflation, so that will help many retirees.

Still, as you get ready to retire, things do get complicated. The longer you wait to collect Social Security, the bigger each check will be. But how long should you wait? What's a realistic budget given your savings? Pacheco says it can be a very good idea to talk to a certified financial planner.

Many experts recommend "fee-only" advisers because they don't get any commissions or kickbacks for steering you into certain investments. So their incentives are aligned with their customers.

DeFrance says she has a meeting with an adviser coming up and plans to ask about that.

And looking ahead, she just hopes inflation calms down soon — and that the power boat gets her kids and grandkids to come visit her a lot this summer.

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