Additional inflation data from the government on Friday, on the heels of the news that the U.S. economy contracted by 0.9% in the second quarter (on top of 1Q22’s 1.6% contraction), is making many people—and employers—worried about the U.S. economy.
Chris Orestis, Retirement Genius, makes sense of the startling news in this Q&A with Newsmax Finance Editor Lee Barney.
Newsmax Finance: How does inflation harm retirees?
Chris Orestis: Because the vast majority of people living in retirement have limited savings and investments, any negative downturn on those holdings can have a huge impact on their short-term ability to maintain their monthly budgets and standard of living.
When people see the value of their investments drop 20% in a matter of weeks, it can have both a negative impact on their finances as well as on their state of mind and well-being. As savings and investments lose value, retirees lose income and confidence in their ability to sustain their lifestyle in retirement.
Newsmax Finance: What can retirees do to protect themselves from inflation and even a recession?
Chris Orestis: There are a variety of strategies to “recession proof” a retirement such as not locking in losses by panic selling investments and assets—and then missing out on the upswing when the economy recovers, and values increase again.
People should not allow themselves to become overly pessimistic about the future and make mistakes by overreacting and making panic-induced mistakes. Stay calm, and use this time to evaluate how you are spending money to find wasteful spending that can be eliminated and re-set your monthly budget.
Look for senior discounts that can help retirees save a lot of money every month on things like groceries, retail shopping, entertainment, and travel. Work to stay out of and/or eliminate debt because as interest rates are going up so are the rates on debts from things like credit cards making that debt even more expensive.
Newsmax Finance: Are there any ways that retirees are insulated from inflation?
Chris Orestis: If seniors have money in vehicles such as certificates of deposit (CDs), money market accounts, bonds and treasuries, they are actually benefitting from the increases in interest rates. For years, money in these areas have been at very low levels of returns, but that is changing quickly as the Fed continues to increase interest rates. Also, there are no reductions in government benefits such as Social Security, Medicaid and Medicare, and the possibility of another large cost of living adjustment (COLA) increase for Social Security benefits in 2023 looks likely.
Newsmax Finance: What are the areas in which retirees are most vulnerable to inflation and a recession?
Chris Orestis: Retirees are who live on a fixed income are really feeling the pinch when it comes to the cost of food, prescription drugs, gas, utilities, transportation, and rent or mortgage payments for housing. Without new income, the value of their pensions, savings, and benefits such as Social Security are significantly undermined because they are unable to keep up with the impact of inflation on these essential needs for living. Also, the cost of debt from credit cards and adjustable-rate mortgages is getting more expensive and interest rates rise, so do all you can to limit acquiring more debt and really focus on paying these debts down.
Newsmax Finance: What specific actions can retiree’s take today to limit the impact of inflation and a recession?
Chris Orestis: This is a good time to spend an entire month tracking every single dime you spend and to audit where all your money goes.
Do you really need a $5 coffee every morning, or could you make your own? Do you know what you are spending on subscriptions for things like streaming services on TV or online, and can you eliminate some of these? Have you checked your cellphone and data package to find waste and savings there?
Are you taking advantage of senior-oriented discount programs and are you taking advantage of the savings found from an AARP or AAA membership?
Use this time to trim out the waste, seek discounts, and lock in a new budget that could possibly save you hundreds of dollars a month.
Newsmax Finance: Are there ways that employers can help current or former workers?
Chris Orestis: Many employers offer Employee Assistance Plans as part of their benefit packages, which can offer a host of financial services and access to financial, insurance and health-related products that could be helpful during times like this.
They have limited options to help retirees with their retirement plans, but any money in retirement accounts should be actively managed and allocated in an age-appropriate way that limits exposure to risk without eliminating the opportunity to benefit from gains when the economy rebounds.
Newsmax Finance: Where else can someone find hidden money?
Chris Orestis: One overlooked source of income is from assets you already own. A reverse mortgage might be smart today, with home values at high levels, to set up a monthly income or establish a line of credit that can be accessed if needed without the need to make any monthly payments.
Also, a life insurance policy is a valuable asset that can be sold through a life settlement for a lump sum payment or to help pay for the expensive costs of health and long-term care and relieve you of anymore premium payments.
You could also guarantee a lifetime income or funds for long-term care with annuities. Annuities are another form of insurance that can guarantee a lifetime income stream and can also help cover the expensive costs of long-term care. Annuity rates of return are currently between 3.5%-4.5% with a guarantee of no loss of principle which can be a smart investment during a bear market.
Newsmax Finance: Any final words of advice?
Chris Orestis: Times of economic uncertainty and turmoil require a mix of patience and creativity to get through to the other side. As bad as things feel right now, there are many underlying factors of the U.S. economy that bolster our country’s ability to whether the storm, bring down inflation, and watch things take off again. Don’t panic—economies are cyclical, and what goes down will go back up again!
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Chris Orestis is a nationally recognized senior care advocate and expert in retirement, long-term care and specialty senior living funding solutions. The author of two books, numerous published papers and articles, and a frequent industry speaker; he is the innovator that brought the LTC Life Settlement into the market over a decade ago.