Numbers don’t lie. Liars use numbers. 

While that may seem harsh the media’s constant mantra of ‘we only have three percent inflation’ has left many Americans shaking their heads in disbelief. Understandably so. 

The True Impact of Inflation

While the annualized growth of inflation has slowed to 3.4% the cumulative impact of inflation has most goods and services costing 17-25% more than just three years ago. Then there are necessities whose costs have far exceeded inflation such as homeowners and auto insurance, new and used vehicles, and fast food to name a few. 

Retirement Threatened

So how are most retirees coping? They’re simply taking larger monthly distributions from their retirement accounts. A recent Wall Street Journal column notes, “Retirees took more money out of their savings to keep up with rising prices, raising the risk of depleting their nest eggs”. These larger withdrawals shorten the life of a retirement portfolio’s sustainable withdrawals- a phrase made popular among reverse mortgage professionals by Wade Pfau, Jamie Hopkins, and others. A survey from the Boston College’s Center for Retirement Research reveals nearly a quarter of retirees and near-retirees changed their withdrawal rates between 2021 and 2023, boosting distributions by an average of $1,810 in each of those years.

“High inflation later in life is often harmful to retirement security,” said Laura Quinby, a senior research economist at Boston College’s Center for Retirement Research and co-author of a study released last month. The center projects inflation will reduce the wealth held by middle-income retirees by 14% from 2021 to 2025. Quinby also noted that while Social Security cost-of-living adjustments have helped weather higher living expenses, other forms of retirement income such as pensions and most annuities do not. 

How Retirees are Coping with Inflation

How are today’s pre-retirees coping with inflation? The survey found that 39% of respondents reported they saved less than before with one-quarter saying they’ve increased their retirement withdrawals. These soon-to-be age-eligible reverse mortgage borrowers will either work longer to offset the havoc wreaked by inflation or risk running out of retirement savings before they die. 

The Double-Whammy

However, the risks of inflation are multiplied when combined with a bear market. The column notes that Bill Bengen, the man who popularized the 4% retirement withdrawal rule of thumb, said 1968 was the worst year to retire. Why? A sustained period of inflation coupled with back-to-back bear markets in 1969 and 1973. In other words, investment losses during a market contraction or recession are especially devastating for retirees and those approaching retirement. 

While reverse mortgage loan volumes have languished in recent years, the most-feared loan in America could see newfound interest should inflation persist and the stock market fall. If home prices remain relatively stable many could find refuge in their home by utilizing a reverse mortgage.