Some stories you never forget. Years ago, I had a widow as a client. She and her husband, a corporate executive, deferred having fun and enjoying life until he retired from the corporate world. You can guess what happened next. I assume the insurance death benefit was substantial, but she never got to enjoy those golden years with the man she loved. The moral of the story is life should be enjoyed while we are healthy enough to enjoy it.
The return of inflation has thrown a spanner into the works. Many retirees live on a fixed income, or more accurately, their retirement income is constructed like a three-legged stool. One leg is Social Security income. The second leg is income generated by their retirement assets and the third leg is income from everywhere else. This might be income from a taxable investment account, municipal bonds or a part-time job.
If they have a defined benefit workplace pension plan (lucky them), it might have a cost-of-living adjustment (COLA) but often prices seem to rise faster than payments go up. How can retirees maintain their lifestyles when faced with the rising cost of living expenses?
By the numbers
Has the cost of living really increased? Ask any retiree and they will tell you yes. They will cite anecdotal evidence like the price of eggs and cream cheese at the grocery store. They will complain about the rising cost of eating out. Let us stick with official statistics.
According to the U.S. Bureau of Labor Statistics, the Consumer Price Index (CPI) rose 6.4% for the 12 months ending in January 2023. Although it was the smallest 12-month increase since the period ending October 2021, many categories saw double-digit price increases including food at home (11.3%), electricity (11.9%), utility (piped) gas service (26.7%) and airfares (25.6%). The cost of food away from home rose by 8.2%. The Social Security COLA increase for 2023 was a sizable 8.7%, but it might not feel adequate to a lot of people, depending on how they typically spend their money. Retirees are getting squeezed.
What can retirees do?
1. Know where their money is going
Encourage clients to look at their checking account. Where do they write checks? Remind them to review their charge card statements. Where are they spending money? How much are they spending on groceries? How often are they eating out?
2. Be more aware of the “I forgot about that” categories
Retirees are not millennials or members of Gen Z, so it’s unlikely they are paying for meal kits delivered to their home or Peloton subscriptions. They might have subscriptions to several streaming services. They can save some money by dropping the subscription services they are not using regularly. They might be paying monthly dues at the gym, while they might be eligible for the SilverSneakers program, which gives Medicare recipients a free fitness plan.
3. Examine their overhead expenses
You have heard the expression “Keeping the lights on.” What monthly bills must be paid? This includes heating oil, electricity and telephone services. Cable TV and trash collection fit into this category too. What are your clients paying? Can they get a better deal?
They might be on a program with their fuel oil company to keep their tank filled on a regular basis. Or they might pay a set price when they sign their annual contract. Encourage them to call some independent fuel oil delivery services to ask them what they’re charging right now to make a delivery. The price might be quite different. They should mention this to their fuel oil provider. It may be worthwhile shopping around for another provider or buying on the spot market (prices for delivery at that moment) when their contract comes up for renewal. When they call their cable company or trash provider, they can play the “senior citizen” card. A discount they can apply.
4. Review insurance premiums, co-pays and coverage
Your clients probably pay several insurance bills. They have homeowner’s insurance, automobile insurance, personal liability insurance and others. They might proactively shop for the cheapest gas every Saturday, but they might not have comparison shopped their insurance coverage for 30 years! Bear in mind, it creeps up every year. This does not need to be an adversarial activity. They should call their insurance agent and ask if they can shop around for a better price. This is one of the ways a good insurance agent adds value.
5. Be aware of credit card interest
If your client carries a revolving charge card balance, they might be surprised what this is costing them. It might be convenient to pay the minimum monthly payment, but according to Lendingtree.com, most credit cards are charging existing customers about 19% to 20% interest. If they can afford to pay them off, they should do so ASAP. If not, see if they can take advantage of a balance transfer deal; but be aware that the “losing” credit card company might find a way to hit them with a transfer penalty.
6. Shop at a cheaper grocery store
Yes, there is status in visiting Whole Foods and, depending on what part of the country you live in, such upscale chains as Wegmans, Harris Teeter or Erewhon. The service might be more attentive. While a gag refers to Whole Foods as “Whole Paycheck Foods,” the German discount chains Aldi and Lidl are building market share by focusing on store brand products at lower prices. Costco is pretty good too. Retirees can cut down their grocery bills.
7. Start to enjoy vacation shopping
Many websites uncovering great airfare deals. Your clients’ friends will know about some. Cruise fares tend to be on the cheaper side now. Encourage your clients to plan vacations far in advance instead of on the spur of the moment. Retirees can set the times of year to get away and shop for the best deals for that time period. City breaks might be good when airfares are high and they can drive to a nice metropolis. Cruise fares might be good when kids are still in school.
8. Entertain more at home
Eating out is expensive. Retirees tend to eat out more than younger people. They should consider getting together with friends and eating in each other’s homes instead of meeting up at a restaurant. They can even get creative and establish their own dining club. Added bonus: they could end up consuming less salt, which is a good thing.
In order to enjoy life more in an inflationary environment, retirees need to first know where their money is going and then get spending under control. This should free up dollars to spend on things that really matter to them, like travel.
Bryce Sanders is president of Perceptive Business Solutions, Inc. He provides HNW client acquisition training for the financial services industry. His book, “Captivating the Wealthy Investor,” is available on Amazon.