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Inflation-Fighting
Strategies for Older
Adults
Dr. Barbara O’Neill, CFP®, AFC®
Owner/CEO, Money Talk
Disclaimers
2022 Flashback
2022 Leading Personal
Finance Topic
What is Inflation?
Source: Next Gen Personal Finance
Question:
Where Are You
Experiencing Inflation the
Most Right Now?
Primary Inflation Driver:
Demand-Pull Inflation
Three Inflation Causes
A Perfect Storm of Factors
Inflation Illustration
Source: Next Gen Personal Finance
Rule of 72
The Rule of 72 also
applies to doubling
prices of goods
and services!
The Rule of 72 in Pictures
The same math
applies to the
doubling of
prices as well
as to savings!
Inflation Measurement Tool
CPI Information Source
Source:
https://www.bls.gov/cpi/
Your Personal Inflation
Rate ≠ The CPI
Inflation Data (50+ Years)
Source:
Next Gen
Personal
Finance
1/22- 7.5%
annual rate
3/22 and
7/22- 8.5%
annual rate
6/22- 9.1%
annual rate
12/22- 6.5%
annual rate
CPI Rate is Annualized
• Guards against “blips” in inflation data (up or down)
• No need for seasonal adjustments (compares the
SAME month a year apart)
• Disadvantage: emphasizes recent history rather than
current events when there are abrupt changes
– By averaging a higher past CPI with a lower recent CPI
(now) OR
– By averaging a lower past CPI with a higher recent CPI
(2021)
Inflation Rates: 2011-2021
Source:
Next Gen
Personal
Finance
Inflation Impacts
Inflation Effects By Income
Source: The Wall Street Journal:
https://www.wsj.com/articles/inflation-takes-
biggest-bite-from-middle-income-
households-11672246653
Federal Reserve Dilemma
Source: Next Gen Personal Finance
2022 Interest Rate
Increases
• By December 2022, the Federal Reserve increased
the federal funds rate SEVEN TIMES to a range
between 4.25% to 4.5% from near 0%
• Increases of 0.25%, 0.5%. 0.75% (4 times) & 0.5%
• Expectation of high rates through 2023 with no rate
reductions expected until 2024
• Impacts: Higher costs for new mortgages, ARMs, and
variable rate credit cards; also, higher interest on
savings accounts and CDs.
Credit/Debt Impacts
As of January, 2023…
• The average credit card rate is 19.6%-an ALL TIME
HIGH- after rising in step with Federal Reserve
interest rate hikes
• Almost half (46%) of credit cardholders carry debt
from month to month, up from 39% last year.
Source: CNBC
https://www.cnbc.com/2023/01/10/americans-lean-heavily-on-credit-cards-
amid-inflation.html
Mortgage Rates
Source:
Freddie Mac
https://www.
freddiemac.
com/pmms
What Can We Do About
Inflation?
1. Groceries
• Make substitutions (store and generic (?) brands)
• Eat more meatless meals
• Stock up on sale items
• Consider a warehouse store
• Eliminate high-cost “junk” foods/eat less food
• Use coupons/double coupons
“Shrinkflation”
Source: Corporate
Finance Institute
• Used by manufacturers to “disguise” higher prices
• Pay attention and compare package sizes and unit prices
• Wait for sales and stock up
• Buy fewer pre-packaged foods
• Compare store brand prices (often last to adjust unit prices)
2. Eating Out
• Rethink restaurant drinks- drink water
• Share an entrée or dessert
• Eat an appetizer as a meal
• Select BYOB restaurants for meals with adult
beverages
• Eat out for lunch or “linner” or “early bird specials”
• Bring takeout containers for another meal
3. Gas
• Drive less/consolidate trips
• Find cheap gas (GasBuddy, Waze)
• Pay with cash
• Join a fuel rewards program (e.g., RaceTrac Rewards)
• Time your fill-ups (Sun/Mon-best; Thurs-worst)
• Check tire pressure and lighten loads
4. Road Trips/Vacations
• Pack snacks and beverages/food in a cooler
• Try to eat out only once a day
• Stay at hotels with free breakfast
• Get hotel coupons at rest stops
• Travel with a group and share expenses
• Travel at “off peak” times (e.g., shoulder season)
• Join hotel/airline rewards programs
• Daycations and staycations to save on gas
5. Utilities
• Adjust thermostat (a little warmer in summer [thermostat up])
and cooler in winter [thermostat down]) and use ceiling fans
• Turn down water heater from 140° to 120° to 130°
• Unplug items not in use (power strip)
• Take advantage of off-peak rates/time-of-day meter
• Change HVAC system air filters regularly
• Use LED light bulbs
• Wash (most) laundry in cold water
• Empty dryer lint trap after every load
• Switch to low-flow showerheads
6. Clothing
• Buy fewer clothes and shoes
• Shop department store sales and use coupons
• Join retailer loyalty programs to earn rewards
• Shop at thrift and consignment stores
• Shop for deals online (e.g., ASOS, Mango, Amazon)
• Make clothing repairs and alterations
7. “Big Ticket” Items
• Wait inflation out, if you can (e.g., houses, cars, computers)
• “Rule of Three” product comparisons
• Pay more than the MSRP?
• Lock in low(er) interest rates on loans
8. Insurance
• Play “what if?” with your insurance agent
• Double check policy discounts you qualify for (e.g.,
multi-policy, age 55+ driver, military veteran, long-
time customer, low mileage driver)
• Shop around for coverage (Rule of Three)
• Explore payment options (fewer payments is cheaper)
• Sign up for auto-pay or online billing statements
• Maintain a good credit record
9. Household Budgeting
• Identify “price increase trigger points” and budget
more
– Examples: rent, property tax, insurance premiums
• Review bills for evidence of “junk fee packing” (e.g., cell
phone, cable, event tickets, insurance policies)
• Discontinue low value auto-pay bills (e.g., gym
memberships, satellite radio, streaming services)
• Find ways to cut expenses (YOU decide how)
• Anticipate windfalls (e.g., tax refund, cash back rewards)
10. Saving and Investing
• Review your TOTAL portfolio: Is the return > taxes and
inflation? If not, you are losing purchasing power!
– Minimum Rate of Return formula: MRR = inflation rate ÷ 100
minus federal marginal tax bracket
– Example: 6% ÷ (100-.22) = 6 ÷ .78 = 7.7%
• Ladder fixed-income securities (e.g., bonds, bank CDs)
to hedge inflation
• Consider Series I bonds (6.89% return through 04/30/23),
fixed annuities, brokered CDs, Treasury bills, and
online bank savings accounts for higher yields
• Hang tough; don’t panic and sell quality stocks
It Pays to Shop Around!
• 0.24% average interest rate on U.S. bank savings
accounts in December 2022
• You can find mutual funds and ETFs with Treasuries
in duration of 1 year or less paying more than 4%
• Online bank savings and money market accounts and
12-month CDs are paying 3.3% to 4%+ (1/23)
• Search “Best Online Savings Accounts” online
You Have Options!
• There are likely trillions of dollars sitting in big brick-
and-mortar bank accounts earning practically nothing
• With the Fed Funds Rate over 4%, this is not
necessary
• Online banks have no branches (less overhead) and
more competition
• You can buy Treasury bills through Treasury Direct OR
via a bank or broker (secondary market)
Investment Withdrawals
During Market Downturns
• IF you have guaranteed income (paycheck, SS,
pension, annuity) to pay all your living expenses:
Ride out market volatility by leaving stock
investments (e.g., index funds) alone;
rebalance portfolio as needed
• IF you are living primarily off investment withdrawals
(e.g., FIRE proponents and retirees):
Consider reducing withdrawal amounts or
skipping annual inflation adjustments and/or tap
cash assets for living expenses to avoid selling
stocks when values are down
Positive Aspects of Inflation
• Inflation-linked COLAs on Social Security, some
pensions, some union or employment contracts
• Inflation-adjusted Treasury Inflation-Protected
Securities (TIPS) and Series I bonds
• Higher wages for workers (industry- and company-specific)
• Impact on Debtors- People with fixed-rate loans can
repay lenders with “cheaper dollars”
• Impact on Investors- Short term bonds, high-quality
stock, and some real estate, commodities can do well
Positive Aspects of Inflation
• Increased contribution limits for tax-deferred
retirement savings plans
• Higher income ranges in the seven federal marginal
tax brackets; people may be taxed at lower tax rates
• Higher standard deduction amount; people can
shelter more income from taxes
• Higher income ranges for IRMAA Medicare surcharge
• Higher estate/gift tax exemption ($12.96 million in 2023)
• Higher bank account interest (shop around for best yields)
Positive Signs: Items
Where Prices Recently
Stabilized or Declined
• Music streaming services
• New video games
• Smartphones
• Gym memberships
• Televisions
• Computer software and
accessories
• Wireless phone service
• Internet services
• Admission to sporting
events
• Used cars
• Apartment rents
Inflation- Induced
Higher Income Cautions
• Taxation of Social Security benefits
• IRMAA
(Medicare surcharge)
• NIIT
Inflation-Fighting
Action Steps
• Try to “claw back” inflation-related costs via budget cuts
• Prepare for future variable rate interest increases/reduce debt
• Stop unnecessary automated expenses (e.g., gym, magazines,
newspapers, satellite radio, etc.)
• Negotiate for better prices (e.g., cell phone, insurance policies,
credit card interest); Ask: “What discounts are available?”
• Take advantage of inflation-adjusted income increases via
COLAs (e.g., pension, Social Security, income tax indexing)
• Consider ways to increase income?
Inflation-Fighting Lifelines
and Major Lifestyle Changes
All Ages
• Government and non-profit public benefits (e.g., needs-based
SSI, food pantries, utility and rental assistance)
• Multi-generational housing arrangements
• Roommates, boarders, Airbnb, Vrbo, etc.
• Downsizing housing (+ utilities, maintenance, property taxes)
• Life insurance loan or reduced coverage (use caution!)
• Fewer discretionary expenses (e.g., eating out, gifts, travel)
Older Adults
• Reverse mortgages and sale-leaseback
• Working in later life
• Rethinking 2nd car ownership, tapping more savings than planned
Where is Inflation Headed
For 2023? Stay tuned!
•Federal Reserve
actions/interest rates
•Ukraine war
•Politics
•Student loan
forgiveness decision
•Supply chains
•Other factors
Your Personal
Inflation-Fighting Plan
Turn your to-do list into atomic
financial habits; small steps
can produce big results
Comments? Questions?
Additional Inflation-
Fighting Ideas?
Try a few ideas that will work for you.

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Inflation Fighting Strategies Class-01-23.pdf

  • 1. Inflation-Fighting Strategies for Older Adults Dr. Barbara O’Neill, CFP®, AFC® Owner/CEO, Money Talk
  • 3.
  • 6. What is Inflation? Source: Next Gen Personal Finance
  • 7. Question: Where Are You Experiencing Inflation the Most Right Now?
  • 10. A Perfect Storm of Factors
  • 11. Inflation Illustration Source: Next Gen Personal Finance
  • 12. Rule of 72 The Rule of 72 also applies to doubling prices of goods and services!
  • 13. The Rule of 72 in Pictures The same math applies to the doubling of prices as well as to savings!
  • 17. Inflation Data (50+ Years) Source: Next Gen Personal Finance 1/22- 7.5% annual rate 3/22 and 7/22- 8.5% annual rate 6/22- 9.1% annual rate 12/22- 6.5% annual rate
  • 18. CPI Rate is Annualized • Guards against “blips” in inflation data (up or down) • No need for seasonal adjustments (compares the SAME month a year apart) • Disadvantage: emphasizes recent history rather than current events when there are abrupt changes – By averaging a higher past CPI with a lower recent CPI (now) OR – By averaging a lower past CPI with a higher recent CPI (2021)
  • 21. Inflation Effects By Income Source: The Wall Street Journal: https://www.wsj.com/articles/inflation-takes- biggest-bite-from-middle-income- households-11672246653
  • 22. Federal Reserve Dilemma Source: Next Gen Personal Finance
  • 23. 2022 Interest Rate Increases • By December 2022, the Federal Reserve increased the federal funds rate SEVEN TIMES to a range between 4.25% to 4.5% from near 0% • Increases of 0.25%, 0.5%. 0.75% (4 times) & 0.5% • Expectation of high rates through 2023 with no rate reductions expected until 2024 • Impacts: Higher costs for new mortgages, ARMs, and variable rate credit cards; also, higher interest on savings accounts and CDs.
  • 24. Credit/Debt Impacts As of January, 2023… • The average credit card rate is 19.6%-an ALL TIME HIGH- after rising in step with Federal Reserve interest rate hikes • Almost half (46%) of credit cardholders carry debt from month to month, up from 39% last year. Source: CNBC https://www.cnbc.com/2023/01/10/americans-lean-heavily-on-credit-cards- amid-inflation.html
  • 26. What Can We Do About Inflation?
  • 27. 1. Groceries • Make substitutions (store and generic (?) brands) • Eat more meatless meals • Stock up on sale items • Consider a warehouse store • Eliminate high-cost “junk” foods/eat less food • Use coupons/double coupons
  • 28. “Shrinkflation” Source: Corporate Finance Institute • Used by manufacturers to “disguise” higher prices • Pay attention and compare package sizes and unit prices • Wait for sales and stock up • Buy fewer pre-packaged foods • Compare store brand prices (often last to adjust unit prices)
  • 29. 2. Eating Out • Rethink restaurant drinks- drink water • Share an entrée or dessert • Eat an appetizer as a meal • Select BYOB restaurants for meals with adult beverages • Eat out for lunch or “linner” or “early bird specials” • Bring takeout containers for another meal
  • 30. 3. Gas • Drive less/consolidate trips • Find cheap gas (GasBuddy, Waze) • Pay with cash • Join a fuel rewards program (e.g., RaceTrac Rewards) • Time your fill-ups (Sun/Mon-best; Thurs-worst) • Check tire pressure and lighten loads
  • 31. 4. Road Trips/Vacations • Pack snacks and beverages/food in a cooler • Try to eat out only once a day • Stay at hotels with free breakfast • Get hotel coupons at rest stops • Travel with a group and share expenses • Travel at “off peak” times (e.g., shoulder season) • Join hotel/airline rewards programs • Daycations and staycations to save on gas
  • 32. 5. Utilities • Adjust thermostat (a little warmer in summer [thermostat up]) and cooler in winter [thermostat down]) and use ceiling fans • Turn down water heater from 140° to 120° to 130° • Unplug items not in use (power strip) • Take advantage of off-peak rates/time-of-day meter • Change HVAC system air filters regularly • Use LED light bulbs • Wash (most) laundry in cold water • Empty dryer lint trap after every load • Switch to low-flow showerheads
  • 33. 6. Clothing • Buy fewer clothes and shoes • Shop department store sales and use coupons • Join retailer loyalty programs to earn rewards • Shop at thrift and consignment stores • Shop for deals online (e.g., ASOS, Mango, Amazon) • Make clothing repairs and alterations
  • 34. 7. “Big Ticket” Items • Wait inflation out, if you can (e.g., houses, cars, computers) • “Rule of Three” product comparisons • Pay more than the MSRP? • Lock in low(er) interest rates on loans
  • 35. 8. Insurance • Play “what if?” with your insurance agent • Double check policy discounts you qualify for (e.g., multi-policy, age 55+ driver, military veteran, long- time customer, low mileage driver) • Shop around for coverage (Rule of Three) • Explore payment options (fewer payments is cheaper) • Sign up for auto-pay or online billing statements • Maintain a good credit record
  • 36. 9. Household Budgeting • Identify “price increase trigger points” and budget more – Examples: rent, property tax, insurance premiums • Review bills for evidence of “junk fee packing” (e.g., cell phone, cable, event tickets, insurance policies) • Discontinue low value auto-pay bills (e.g., gym memberships, satellite radio, streaming services) • Find ways to cut expenses (YOU decide how) • Anticipate windfalls (e.g., tax refund, cash back rewards)
  • 37. 10. Saving and Investing • Review your TOTAL portfolio: Is the return > taxes and inflation? If not, you are losing purchasing power! – Minimum Rate of Return formula: MRR = inflation rate ÷ 100 minus federal marginal tax bracket – Example: 6% ÷ (100-.22) = 6 ÷ .78 = 7.7% • Ladder fixed-income securities (e.g., bonds, bank CDs) to hedge inflation • Consider Series I bonds (6.89% return through 04/30/23), fixed annuities, brokered CDs, Treasury bills, and online bank savings accounts for higher yields • Hang tough; don’t panic and sell quality stocks
  • 38. It Pays to Shop Around! • 0.24% average interest rate on U.S. bank savings accounts in December 2022 • You can find mutual funds and ETFs with Treasuries in duration of 1 year or less paying more than 4% • Online bank savings and money market accounts and 12-month CDs are paying 3.3% to 4%+ (1/23) • Search “Best Online Savings Accounts” online
  • 39. You Have Options! • There are likely trillions of dollars sitting in big brick- and-mortar bank accounts earning practically nothing • With the Fed Funds Rate over 4%, this is not necessary • Online banks have no branches (less overhead) and more competition • You can buy Treasury bills through Treasury Direct OR via a bank or broker (secondary market)
  • 40. Investment Withdrawals During Market Downturns • IF you have guaranteed income (paycheck, SS, pension, annuity) to pay all your living expenses: Ride out market volatility by leaving stock investments (e.g., index funds) alone; rebalance portfolio as needed • IF you are living primarily off investment withdrawals (e.g., FIRE proponents and retirees): Consider reducing withdrawal amounts or skipping annual inflation adjustments and/or tap cash assets for living expenses to avoid selling stocks when values are down
  • 41. Positive Aspects of Inflation • Inflation-linked COLAs on Social Security, some pensions, some union or employment contracts • Inflation-adjusted Treasury Inflation-Protected Securities (TIPS) and Series I bonds • Higher wages for workers (industry- and company-specific) • Impact on Debtors- People with fixed-rate loans can repay lenders with “cheaper dollars” • Impact on Investors- Short term bonds, high-quality stock, and some real estate, commodities can do well
  • 42. Positive Aspects of Inflation • Increased contribution limits for tax-deferred retirement savings plans • Higher income ranges in the seven federal marginal tax brackets; people may be taxed at lower tax rates • Higher standard deduction amount; people can shelter more income from taxes • Higher income ranges for IRMAA Medicare surcharge • Higher estate/gift tax exemption ($12.96 million in 2023) • Higher bank account interest (shop around for best yields)
  • 43. Positive Signs: Items Where Prices Recently Stabilized or Declined • Music streaming services • New video games • Smartphones • Gym memberships • Televisions • Computer software and accessories • Wireless phone service • Internet services • Admission to sporting events • Used cars • Apartment rents
  • 44. Inflation- Induced Higher Income Cautions • Taxation of Social Security benefits • IRMAA (Medicare surcharge) • NIIT
  • 45. Inflation-Fighting Action Steps • Try to “claw back” inflation-related costs via budget cuts • Prepare for future variable rate interest increases/reduce debt • Stop unnecessary automated expenses (e.g., gym, magazines, newspapers, satellite radio, etc.) • Negotiate for better prices (e.g., cell phone, insurance policies, credit card interest); Ask: “What discounts are available?” • Take advantage of inflation-adjusted income increases via COLAs (e.g., pension, Social Security, income tax indexing) • Consider ways to increase income?
  • 46. Inflation-Fighting Lifelines and Major Lifestyle Changes All Ages • Government and non-profit public benefits (e.g., needs-based SSI, food pantries, utility and rental assistance) • Multi-generational housing arrangements • Roommates, boarders, Airbnb, Vrbo, etc. • Downsizing housing (+ utilities, maintenance, property taxes) • Life insurance loan or reduced coverage (use caution!) • Fewer discretionary expenses (e.g., eating out, gifts, travel) Older Adults • Reverse mortgages and sale-leaseback • Working in later life • Rethinking 2nd car ownership, tapping more savings than planned
  • 47. Where is Inflation Headed For 2023? Stay tuned! •Federal Reserve actions/interest rates •Ukraine war •Politics •Student loan forgiveness decision •Supply chains •Other factors
  • 48. Your Personal Inflation-Fighting Plan Turn your to-do list into atomic financial habits; small steps can produce big results
  • 49. Comments? Questions? Additional Inflation- Fighting Ideas? Try a few ideas that will work for you.