Inflation’s Impact on Vulnerable Older Workers’ and Retirees’ Economic Outcomes

Published: 2024
Project ID: UM24-05


Inflation and uncertainty over future prices recently reached their highest levels in four decades. Given lower rates of homeownership and other inflation protected assets, Black, Hispanic, and lower-income older workers and retirees may be particularly vulnerable to high inflation. Hence, future price increases may create higher financial stress among these groups, though the role of Social Security benefits in protecting the economic security of retirees is heightened.

Unexpected inflation is a distributional shock, particularly affecting economically disadvantaged groups. Those holding nominal assets and conducting a higher fraction of their transactions via cash, who tend to be low-income households, suffer real wealth losses. Homeowners with long-term fixed interest rates benefit from inflation from both an increase in the real value of their net wealth and a reduction of the (real) amount of their mortgage payments. However, homeownership is relatively less prevalent among Blacks and Hispanics and those with lower incomes. For renters, inflation translates into higher (real) rent payments concurrent with the destruction of the value of any wealth in checking accounts, cash, or other nominal assets.

For retirees, especially those who rely mainly on Social Security (SS) retirement benefits, indexation shields them from some of the adverse effects of inflation. We hypothesize that, given the indexation of benefits, the role of SS in ensuring older individuals’ financial security is further increased in an inflationary environment, particularly among renters and other disadvantaged groups whose wealth tends to be mainly held in nominal assets.