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May 16, 2024 at 02:28 PM
It’s no secret that high rates of inflation generally harm consumers, with particular negative effects on older generations who are living on a fixed income or otherwise have a reduced ability to rely on the labor market to pursue higher wages.
However, as shown by a new report published by the Center for Retirement Research at Boston College, the magnitude of the negative effects on any given older household depends on a variety of offsetting factors, including the extent to which income and investments keep pace with rising prices and the amount of fixed-rate debt held by the household — which declines in real terms as inflation rises.
The analysis, which was put together by CRR researchers Jean-Pierre Aubry and Laura Quinby, shows clearly that these two factors lead to varying risk levels across the age and wealth distribution when high inflation rears its head. As expected, inflation harms retirees more than near retirees because — outside of Social Security — retiree income is less indexed to prices, and retirees hold less debt.
Similarly, high-wealth households see a smaller reduction in financial assets than their lower-wealth counterparts, mainly because they are more heavily invested in equities and business that grow with inflation. However, the researchers show, these families often end up experiencing a bigger drop in consumption than lower-wealth households living on Social Security.
The authors say their topline findings are also complemented by a significant number of interesting and potentially useful insights for financial advisors and their clients to consider. To that end, see the slideshow for a review of seven key takeaways from the new CRR inflation report.
Slideshow
