Older Adults' Savings Took a Beating in 2021: Study

The January consumer price index increase of 6% reported in February shows the continuing stickiness of inflation, a factor that is hurting retiree savings, according to a new survey by The Senior Citizens League.

In 2021, consumer prices for all items rose 7%, the largest yearly change since 1981, according to the Bureau of Labor Statistics. The agency reported that food prices increased 6.3%, “a larger percentage increase than the 12-month increase of 3.9 percent in 2020.”

But the biggest spikes were in gasoline (up 49.6%), used cars and trucks (37.3%), and energy overall (29.3%), goods that normally don’t affect retirees as much.

And while certain portfolios might have fared well in 2021 — the S&P 500 was up almost 27% — for many retirees, it wasn’t a good year, the League found in a January survey of 1,131 of those who had retirement savings.

In its survey, the advocacy group for older adults wondered how retirees’ savings fared while inflation soared in 2021.

The findings were:

• 57% reported that their retirement savings were down by more than 10%.
• 10% reported that their retirement savings were down by less than 10%.
• 16% reported that their retirement savings had increased by more than 10%.
• 6% reported that their retirement savings had increased, but by less than 10%.
• 11% reported that their retirement savings stayed about the same as they were on Dec. 31, 2020.

Inflation Impact

In analyzing these returns, Mary Johnson, Social Security and Medicare policy analyst for the League, pointed out that due to inflation, “retirees may have dug deeper into their retirement savings than they ever planned,” she told ThinkAdvisor in an email. “While medical goods and services grew at a slower rate of inflation, they still rose.”

She added that the group has received some “wrenching” emails from retirees who had to choose between paying for medicine or food, and were down to one meal a day.

“The same survey found that almost one out of two survey participants reported that they had applied for SNAP [the Supplemental Nutrition Assistance Program] or visited a food pantry in the past 12 months,” she said.

Even worse for retirees surveyed, 19% stated they drew down their retirement savings more than usual, and 20% said they depleted their retirement or savings account, she said.

“I suspect many retirees may have had too much of [their] savings invested in bonds and [certificates of deposit] earning micro rates of return,” she said.

She added that the drawdown by retirees “without adequate reserves to recover above 10% over the previous year” is a major issue.

“This is such an important reason why it’s important for people nearing 62 to delay retirement and work longer, not only to maximize Social Security payouts, but to allow more time to contribute to retirement accounts. A few extra years of savings can really help.”