It’s easy to think of inflation as an equal-opportunity scourge. But its impact varies by individual. Your age, budget and spending priorities affect how you experience inflation. While rising prices create across-the-board hardship, each of us spends money in our own way, and some types of products and services are rising faster than others.
When clients fret about inflation, investment advisers respond with the same handholding they provide in market downturns. They assure clients that their long-term financial plan assumes inflationary periods like this one. They run projections to show that even rapidly rising prices won’t upend the plan. They suggest riding out this cycle and staying the course.
“Inflation impacts people who are in buying mode,” said Leslie Thompson, an Indianapolis-based adviser and co-founder of Spectrum Wealth Management. “People in their 30s are buying different things than people in their 50s, like a first home and things for the home and for their children. They are forced to buy more things as first-time purchases, while [older] people can maybe be a little more selective in timing their purchases.”
Baby boomers (born 1946 to 1964) tend to have more discretionary expenses that relate to hobbies, leisure travel and upgrades or renovations in their first or second home. They can choose to postpone such spending if they deem the price too high.
Younger consumers, by contrast, often lack the flexibility to cut spending. They cannot avoid monthly rent or mortgage payments. They need to furnish their home, buy a car seat for their infant and perhaps cover the tuition for their kids’ private school.
Of course, pre-retirees in their 50s and early 60s face rising healthcare costs as they wait to qualify for Medicare. But prices for many medical services fell relative to inflation in early 2022, so these consumers may not feel as much of a pinch.
Thompson looks at inflation through the lens of each client’s life stage. She says young professionals face a nastier sting from higher inflation because of their need to buy so many things. “Then it moderates [for mid-career professionals],” she said.
Retirees can scale down their spending (although many are surprised by their unexpectedly high expenses). But seniors might face a sudden spike in spending — and the accompanying inflationary pain — if for example they need to hire home health aides and other support services as they age.
For clients worried about inflation, advisers will help them forecast their cash flow in the years ahead — and assess to what extent inflation might affect cash flow projections. Some individuals expect their earnings to grow by a predictable amount based on their career trajectory or conservatively managed investment portfolio. Others intend to relocate to a different state (or country) with a higher or lower cost of living.
Because there are so many variables, Thompson likes to customize how inflation will affect each client. “Some advisers assume 3% for inflation as boilerplate,” she said. “We’ve always taken a different view. We look at [each client’s] personalized inflation rate.”
Some advisers offer tools to help consumers identify their personal inflation rate. Doug Kinsey, a certified financial planner in Dayton, Ohio, created a personal inflation rate calculator. Such calculations partially reflect the monthly inflation numbers released by the Bureau of Labor Statistics. These figures span many spending categories as well as seasonally adjusted and unadjusted inflation rates within categories.
Yet data alone can only provide so much comfort to anxious clients. Advisers also need to listen and let them vent.
“Inflation is scary,” said Kelly Klingaman, a certified financial planner in Austin, Tex. “It’s stressful to many clients knowing inflation is high. Hearing them express their concerns” lays the groundwork for forging strategies and solutions to overcome fast-rising prices.