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Getting a Handle on Inflation Affects How Far Your Money Takes You

For Gen Xers, inflation can impact their retirement strategy

Credit: Getty

This article written by Lazetta Rainey Braxton, MBA, CFP® originally appeared at

nflation, the increasing costs of everyday expenses, has slowly crept its way into our lives like undesired weight gain; at some point, you're guaranteed to feel the pinch at almost every turn.

With rising prices, Gen Xers face spending more money now to maintain our current lifestyle while feeling stretched with saving for a comfortable lifestyle later in retirement.

If you're like me, you may be singing a version of B.B. King's "Inflation Blues":

"I'm trying to make a living

I can't save a cent

It takes all of my money

Just to eat and pay my rent

I got the blues

Got those inflation blues"

Understanding Inflation's Impact on Basic Expenses

Generally, inflation targets the basic necessities in life: housing, medical care, food and transportation. Let's explore the impact on each.

Gen Xers, we're within 10 years to 25 years of age 67, our Social Security full retirement age. This retirement range falls well below a customary 30-year mortgage and signals our need to examine how we will manage housing costs now and during retirement.

Securing a 15-year or 20-year mortgage while interest rates are low single digits may be a good hedge against rising rates and home prices and a mortgage-free retirement. If you desire to keep a mortgage payment for a potential mortgage interest deduction, keep in mind the rule of thumb for housing costs: 30% of your total gross retirement income.

As an example, if your total expected retirement income totals $7,000 per month, your housing cost based on the rule of thumb would be $2,100/month (very close to the average cost of a 2-bedroom apartment).

If homeownership remains on your dream list, watch out for rising rent prices which soared by 17.6% year-over-year as of March 2022. Factor in a possible increase in rent of 3% to 15% higher with each lease renewal.

Research projects that one-third of renters will be age 60 or older in 2035. If you do the math, this population includes Gen Xers!

Even the costs of medical care scare Gen Xers who believe that we're aging like fine wine when reality often says otherwise. PwC reports that medical costs will increase by 6.5% in 2022 slightly down from 7% in 2021. Even the fittest Gen Xers experience wear and tear on our bodies, and we are appalled by the increasing medical visits and expanding team of doctors.

As a way to offset high medical costs, consider funding a Health Savings Accounts (HSAs), if the option is available and feasible. HSA contributions are tax-free, as well as earnings and distributions if the funds are used for qualified medical expenses throughout your lifetime. These accounts represent a great addition to your growing retirement portfolio.

Rising gas and food costs also remain difficult to navigate. Escalated gas prices represent a dreadful reminder of returning to work for commuters and a sore spot for vacationers. Over the period of February 2021 to February 2022, gas prices rose 6.6%.

In 2021, the USDA reported that food prepared at home and outside the home experienced a 3.5% and 4.5% hike in inflation, respectively. By extension, and paired with the pandemic, restaurants and other food establishments will continue to pass the costs onto consumers in order to keep afloat. Food for thought, for sure.

Factoring Inflation Into Retirement Investment Strategy

With inflation at a 40-year high, our retirement investment strategy holds a more critical place as a defense against rising prices. Our goal is to make sure that we don't outlive our retirement income.

Even the costs of medical care scare Gen Xers who believe that we're aging like fine wine when reality often says otherwise.

Pensions, Social Security, and general savings will be our most common support systems; yet, we must be wary of the fact that only an estimated 7% of retirees receive all three forms of retirement income with retirees only receiving a 1.3% increase in Social Security income in 2021.

Returns from safe investments alone, such as high-yield savings accounts, money market accounts, and bonds have not historically outpaced inflation as with stocks investments. It's important to revisit the percentages of your portfolio that are invested in stocks, bonds, cash, real estate and other investments.

Reconfirm the risk you're willing to take for the return you hope to get with your retirement accounts to offset the negative impacts of inflation and to support a comfortable retirement lifestyle.

While inflation can spark the blues, taking the proper steps to navigate its impact will allow you to enjoy life now and later without skipping a beat.


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