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What Dangers Do Close to Retirees and Retirees Face from Inflation? – Heart for Retirement Analysis

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In June 2022, U.S. inflation peaked at 8.9 p.c – a dramatically excessive stage after almost three a long time of comparatively steady costs.  As a result of inflation has been so low for thus lengthy, the dangers it poses have been usually neglected and up to date historical past doesn’t supply a lot sensible perception on its impression.  This paper makes use of financial idea and knowledge from the Survey of Client Funds for example how a bout of excessive inflation impacts older households’ way of life underneath totally different hypothetical macroeconomic situations.  It exhibits that top inflation usually harms older households, however the magnitude of the impression depends upon two offsetting components: 1) the extent to which earnings and investments hold tempo with rising costs; and a pair of) the quantity of fixed-rate debt.  These two components result in various threat throughout the age and wealth distribution.  Moreover, when latest inflation began to place stress on family budgets, many responded by decreasing new saving and rising withdrawals from present saving.  Incorporating these behaviors into the state of affairs evaluation exhibits that households largely offset the speedy lack of actual earnings, however considerably scale back their wealth accessible to fund future consumption.


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