Although majorities of pre-retirees and retirees are considering how inflation will affect their retirement income, according to the Society of Actuaries, there's still a need for better understanding and more risk management.
SOA released a report on Monday that found 72% of pre-retirees and 55% of retirees are factoring inflation into their retirement planning, while 71% of pre-retirees and 58% of retirees say they are "somewhat concerned" about inflation risk. Sixty-two percent of pre-retirees say they are concerned about interest rates impacting their retirement, compared with 52% of retirees.
The report noted that older people bear the costs of inflation more than society as a whole due to "health costs (including cost sharing in employer plans and Medicare Part B premiums), and energy and food costs," although they are better able to offset the cost by cutting back on some luxury items they may have previously considered to be necessities.
Another problem both retirees and pre-retirees are facing is short-sightedness in retirement planning. Just 5% of pre-retirees have planned to or beyond their life expectancy and 13% look at least 20 years in the future when making important financial decisions. Among retirees, just 7% look so far into the future when making financial plans, and most (20%) look no more than four years ahead.
"Though longevity is considered critical, few respondents looked ahead even as far as their life expectancy," according to the report. "Even among those who do, many assume that planning through their life expectancy is sufficient, with little or no awareness of the financial consequences of the one-in-two chance that they may live past that point."