With inflation still at a 40-year all-time high of 8.3% and the stock market going haywire, Chris Orestis, Retirement Genius, speaks with Newsmax Finance Editor Lee Barney on what retirees need to do now to ride out the storm.

Newsmax Finance: How should people planning for retirement handle the impact of inflation?

Chris Orestis, Retirement Genius: The latest Consumer Price Index report paints a grim picture for U.S. consumers, showing that inflation continued to barrel forward at 8.3% in April, remaining at 40-year highs. That statistic is perhaps most concerning for retirees.

History tells us that inflation will eventually stagnate, but it can eat away at retirement savings. In fact, research shows that a 1% inflation rate can swallow up more than $34,000 of retirees’ benefits. At a rate of 8.3%, inflation can eat away at roughly $282,200 of a retirement portfolio. It’s an important lesson for those currently saving for retirement that you can expect to need more money than you originally predicted in your later years and that prices will continually increase.

Unfortunately, the lack of preparation of most Americans for retirement is really quite astounding and paints a scary picture of an aging population that does not understand the financial realities of growing older.

According to the U.S. Census Bureau, by 2030, 21% of the U.S. population will be age 65 or older. That’s approximately 73 million Americans at retirement age in less than 10 years. We know that the retirement accounts of a large number of these consumers are far below what will be adequate to sustain their households for the duration of their average life expectancy—and that’s not accounting for healthcare and long-term care costs. Factor in the current inflation rates, and it’s a disastrous recipe for those approaching retirement.

Newsmax Finance: Can you expand on how inflation affects retirees the most and talk about the products and services where retirees’ pocketbooks are hardest hit?

Chris Orestis: Inflation is particularly hard on senior citizens because for many, they are living on tight budgets and a fixed income from Social Security. Inflation can almost entirely diminish their purchasing power, especially considering they have higher expenses when it comes to healthcare and long-term care.

For reference, elderly Americans can expect to spend three times that of the average working adult on medical expenses. Therefore, when inflation increases, retirees are hit harder and the costs affect them much more extensively.

Even Social Security cost-of-living-adjustment (COLA) increases have failed to keep pace. Social Security recipients received a 5.9% COLA increase in 2022. That was among the highest ever granted to seniors—but needs to be assessed in the context that inflation is now at 8.3%.

Further eroding the impact of the Social Security COLA adjustment this year was the largest increase for Medicare Part B premiums in the program’s history. An even larger COLA increase for Social Security is planned for 2023. However, at a projected 7.9%, it will still fail to meet current inflation levels, undermining the ability of seniors to afford daily necessities. The cost of simple groceries for seniors is a great example. The organization Feeding America recently released a report saying that 5.2 million Americans 60 and over are food insecure.

Newsmax Finance: Given these serious headwinds, how should people handle their investments in an inflationary environment paired with such a volatile stock market?

Chris Orestis: Start by padding your budget. With inflation rates at the highest we’ve seen in 40+ years, begin building a higher inflation rate into your annual spending budget. If you’re currently using 7% for example, go ahead and push projections up to 8% or 9% to keep pace.

Reevaluate your portfolio. Combating high inflation over time requires investing in assets that help you maintain your purchasing power in the years to come. If you’re younger, you can stick with a stock-heavy portfolio—but if you’re nearing retirement age it’s a good idea to shift to more fixed-income investments that are inflation-protected, such as bonds.

Consider delaying retirement. If you’re worried about inflation and nearing retirement age, it could also be prudent to consider delaying drawing on Social Security. You can start receiving payments anytime between ages 62 and 70, but the payment increases with each month that you delay up until the age of 70. Cost-of-living adjustments also boost the average recipient’s check over time.

Newsmax Finance: What would be the right way to handle investments to try to stay ahead of inflation during this period?

Chris Orestis: If a person’s retirement nest egg is tied up in vehicles that are performing below the annual rise in cost of living—they are losing money. Inflation and taxes will eat away at the net value of savings and investments, so it is imperative that a retiree is able to configure their holdings to be as safe as possible while also growing at a rate of 5% or greater.

In addition to continuing to generate income for as long as possible, an individual or couple need to maximize their Social Security and Medicare benefits and do all that is possible to maintain an investment strategy that will both provide growth and protect savings.

A smart move to balance risk and reward is to set up a cash position that will cover a minimum of two or three years of living expenses to be able to ride out any downturns in the market without liquidating investments at a loss. The rest of savings should be kept in a variety of investment positions to take advantage of market growth over a longer time frame and stay ahead of the erosion of inflation, taxes, and the eventuality of growing health related expenses.

The average period that a bear market has lasted over the history of the stock market is less than 10 months, while the average duration of a bull market is more than 3.5 years. If a market downturn hits, a person can draw from their cash reserve but leave their investments intact without locking in losses. This way, they won’t miss out on the upside which historically will occur on average in less than a year.

There are too many stories of seniors who panicked in 2008 and 2020 when the markets went down by cashing out their positions for losses only to then miss the rebounds and growth that occurred relatively soon afterwards.
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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.