Investing

Almost half (45%) of Americans plan to take a summer trip requiring a flight or hotel stay, and they expect to spend an average $3,594, according to NerdWallet’s 2024 summer travel report. 
While most travelers intend to finance a portion their trips on debt, some don’t plan to pay it off immediately.
Here’s what to consider about summer travel in 2024 and how to shed costs.

Klaus Vedfelt | Digitalvision | Getty Images

If you plan to spend money on travel as the days get longer, sunnier and warmer, be careful: It could leave you with high-interest debt you will still be paying off through the fall and winter.
Almost half (45%) of Americans plan to take a summer trip requiring a flight or hotel stay, and they expect to spend an average $3,594, according to NerdWallet’s 2024 summer travel report. 

The majority of travelers, 83%, will pay for part of their vacation costs with a credit card. But 20% won’t pay off the balance in full within the first billing statement, NerdWallet found. The report polled 2,092 U.S. adults from Jan. 30 to Feb. 1, 2024.
More from Personal Finance:Average consumer carries $6,218 in credit card debtHere’s the inflation breakdown for April 2024 — in one chartBiden administration extends key deadline for student loan forgiveness
“Travel expenditure is not slowing down,” said Hayley Berg, lead economist at Hopper.
The summer wedding season may contribute to travel debt. About 31% of recent wedding guests took on debt, according to a new study by LendingTree. Of those who paid with credit, the cost of travel (32%) and accommodations (27%) racked up the highest bills, LendingTree found.

‘More bang for their buck’

Three quarters of Hopper users said they plan to spend the same or even more on their travels this summer, the 2024 Travel Outlook by Hopper found.

“But they are trying to get more bang for their buck,” she said, by getting more trips out of the bigger or same-size budget.
About 86.6% of Hopper users expect to travel this summer, but 72.5% have not booked their trips yet, according to the outlook.
“It never surprises me how many people wait until the last minute to book their vacation,” Berg said.
Fortunately for travelers, airfares are down 5.8% from a year ago, according to the consumer price index.

Domestic airfare for the months of June, July and August cost around $305 on average, down 6% from this time last year, according to Hopper. Prices are expected to peak at $315 per ticket at the end of May and early June, per Hopper data.
“That is a vast improvement over the prices increases that we have been seeing every year,” Berg said.

But other costs associated with air travel have gone up. For instance, many major airlines like United Airlines, American Airlines and JetBlue Airways increased their checked baggage fees this year.
“Most airlines raised their fees by five dollars,” said Sally French, travel rewards expert at NerdWallet.”That typically means something like 35 dollars now becomes 40 dollars … That’s an additional 40 dollars there for a round trip.”
Some cardholders may believe that carrying a balance while they pay off a vacation or other big-ticket purchase is good because it helps to show they’re using the card, said French.
That’s a common misconception. In 2022, about 46% of Americans believed that leaving a balance on their credit card is better for their score than paying it off entirely, according to NerdWallet data.
“There are many myths about credit cards,” French said. “Leaving a balance in your credit card is not necessarily good for your credit score.”
The reality is, carrying a balance can increase your credit utilization ratio, which has the potential to ding your score. Plus you’re adding to the expense of that purchase, with average credit card interest rates topping 20%.
Cardholders already owe $1.12 trillion in credit card debt, with an average balance of $6,218 per consumer, according to a new report by the Federal Reserve Bank of New York.

‘If you have not booked, book now’

Smart planning and budgeting can help you cut travel costs and make it easier to avoid carrying a balance. Here are three strategies to try:
1. Book summer travel plans soon: The sooner you book your travel plans, the lower the upfront cost will tend to be. Prices for domestic flights in the U.S. tend to spike the weekend before 4th of July week, Memorial Day weekend and Labor Day weekend, per Hopper data.
“If you have not booked, book now,” Berg said.
“The sweet spot” for international trips is three to five months in advance; if you plan on taking a trip in August, now is the time. For domestic flights, about two to three months in advance is best for summertime trips. You might still have time to book late summer, early fall trips, she explained.

2. Be as flexible as you can: If you are able, avoid departing on Thursday or Friday nights; try booking flights on Tuesdays or Wednesdays. Flying in the middle of the week can save about $50 per ticket on domestic airfare, and “a whole lot more” on international, Berg said.
If you’re flexible on your trip dates, booking vacations for September and even early October can save you 30% off hotel and airfare prices. And “the weather is typically just as good, fewer crowds in many destinations,” Berg said. “Easy way to save money and also have a little bit less of a tourist experience.”
2. Save on food costs: When budgeting for a vacation, travelers focus on hotel and flight costs because they typically book and pay for those in advance, said French. Restaurant prices are often a surprise when travelers review their spending and “are shocked by how high it is,” she said.
Look for options to save on food costs by going to counter-service options over table service. Or go to a local farmers market or supermarket and cook something on your own for a meal or two.
“Dining out is a huge part of a lot of people’s trips, so you might not want to skip that entirely,” French said.
3. Leverage credit card rewards: Some credit cards offer benefits and rewards on dining and travel expenses such as checked bag fees. They might also extend those perks to other people you’re traveling with, French said.
But this isn’t a last-minute move: It takes time to apply and then receive your new card. “Many people get tripped up because you do have to apply for this credit card ahead of time,” she said. More

Deflation is the opposite of inflation. It’s when prices decline for goods and services.
That has largely occurred for physical goods such as home furniture, appliances, and new and used cars over the past year, according to the consumer price index.
Some categories of food and travel costs such as airfare have also deflated.

Oscar Wong | Moment | Getty Images

Inflation is higher than policymakers would like across the broad U.S. economy. Yet, there are many sectors seeing the opposite dynamic: deflation.
Deflation means prices are declining for consumers. Conversely, inflation measures how quickly costs are rising for goods and services.

Consumers have largely seen prices deflate for physical goods, such as cars, furniture and appliances, economists said. They’ve also declined for some groceries and other things, such as travel, according to the consumer price index.

Why home goods prices have decreased

Demand for physical goods soared in the early days of the Covid-19 pandemic as consumers were confined to their homes and couldn’t spend on things such as concerts, travel or dining out.
The health crisis also snarled global supply chains, meaning goods weren’t hitting the shelves as quickly as consumers wanted them.
Such supply-and-demand dynamics drove up prices.
Now, however, they’ve fallen back to earth. The initial pandemic-era craze of consumers fixing up their homes and upgrading their home offices has diminished, cooling prices. Supply chain issues have also largely unwound, economists said.

Prices on goods have been in “modest deflationary territory for a while now,” said Michael Pugliese, a senior economist at Wells Fargo Economics.
Physical goods prices have deflated in all but one month since May 2023, for example. Prices are down 1.3% in the past year, according to CPI data.
Perhaps the most prominent examples are items sold in retail stores, such as home furniture, said Stephen Brown, deputy chief North America economist at Capital Economics.
More from Personal Finance:High inflation harms older householdsHere’s the inflation breakdown for April 2024 — in one chartGameStop, AMC rallies: Here are the risks to monitor
Furniture and bedding prices fell 3.8% in the past year, and 0.5% just in the month from March to April, according to CPI data.
Meanwhile, prices for home appliances, such as laundry equipment, declined by 5.6% in the past year.
Additionally, they’ve decreased for goods such as dishes and flatware, down 6.5%; toys, down 7.4%; outdoor equipment and supplies, down 6.1%; and sporting goods, down 1.1%.

The U.S. dollar’s strength relative to other global currencies has also helped rein in prices for goods, economists said. This makes it less expensive for U.S. companies to import items from overseas, since the dollar can buy more.
The Nominal Broad U.S. Dollar Index is higher than at any pre-pandemic point dating to at least 2006, according to Federal Reserve data. The index gauges the dollar’s appreciation relative to currencies of the nation’s main trading partners such as the euro, the Canadian dollar and the Japanese yen.
Downward pressure on goods prices has waned a bit in recent months as supply-and-demand dynamics have normalized, economists said.

Car, travel and food prices have also deflated

Prices for new and used vehicles have also deflated over the past year, by 0.4% and 6.9%, respectively. They were among the first categories to surge when the economy reopened broadly early in 2021, amid a shortage of semiconductor chips essential for manufacturing.
Grocery prices have also declined over the past year, in categories such as ham, frozen fish, eggs, milk, cheese, citrus fruits, coffee and potatoes. Notably, consumers have seen apple prices fall 12.7% in the past year amid burgeoning supply.

Each food item has their own idiosyncratic supply-and-demand dynamics that influence prices, said Mark Zandi, chief economist at Moody’s Analytics.
Broadly, though, “American consumers are getting much better at shopping and buying things where they’re getting a price break,” he said.
“Grocery stores have to respond to the price sensitivity,” he added.
Meanwhile, inflation on the services side of the U.S. economy has proven “more buoyant” than that of goods, Zandi said.
Relatively strong wage growth has played a big role, since services jobs tend to be more labor intensive, economists said.

However, travel costs — which are part of the services side of the economy — have bucked that trend. Airfare, hotel and rental car prices have declined by 5.8%, 0.4% and 10.1%, respectively, since April 2023, for example.
Airlines have increased the volume of available seats for travelers by flying larger planes on domestic routes, which has helped push down prices, for example, according to Hayley Berg, lead economist at travel site Hopper.
There’s also been “quite a large correction” in the price of jet fuel, said Capital Economics’ Brown. Such fuel is a key input cost for airlines.

Elsewhere, some deflationary dynamics may happen only on paper.
For example, in the CPI data, the Bureau of Labor Statistics controls for quality improvements over time. Electronics such as televisions, cellphones and computers continually get better, meaning consumers generally get more for the same amount of money.
That shows up as a price decline in the CPI data.

Don’t miss these exclusives from CNBC PRO More

Many Americans are still earning higher interest after a series of rate hikes from the Federal Reserve.
Interest from savings accounts or certificates of deposits incurs regular or “ordinary income” taxes, depending on your federal income tax bracket.
But there are options to reduce taxable interest, according to financial advisors.

Riska | E+ | Getty Images

The first question someone should ask is how much cash do they still need and whether it makes sense to invest some of that money elsewhere, according to CFP Ashton Lawrence, director at Mariner Wealth Advisors in Greenville, South Carolina.
Typically, financial experts recommend keeping an emergency fund of three to six months to apply to living expenses. But the amount could be higher depending on your needs or short-term goals, experts say.
For those ready to explore tax-friendly investments for cash allocations, here are some options to consider.

‘One of the best options’ for cash

If you’re a higher earner, you may consider municipal bonds, muni bond funds or muni money market funds, experts say.
There are no federal taxes on interest accrued on these assets and you could even avoid state and local levies, depending on where you live. But muni bond interest can trigger higher Medicare Part B premiums, experts warn.
A muni bond exchange-traded fund is “one of the best options available” for tax-advantaged cash, said CFP Andrew Herzog, an associate wealth advisor at The Watchman Group in Plano, Texas.
Muni bond fund yields can be lower than their taxable counterparts. But you need to calculate the after-tax yield on fully taxable funds for an apples-to-apples comparison.

Save in ‘high-income tax states’

Another option for cash is Treasury bills, or T-bills, with terms ranging from one month to one year, according to Thomas Scanlon, a CFP at Raymond James in Manchester, Connecticut.
While you’ll still owe federal taxes on T-bill income, the assets are exempt from state and local taxes.
“This really matters in high-income tax states like California, New York and others,” Scanlon said. But there’s no benefit in places like Florida or Texas with no state income tax.

Don’t miss these exclusives from CNBC PRO More

As protections and relief options for federal student loan borrowers grow, refinancing your debt may be a riskier move than it once was, consumer advocates warn.
“We have seen, time and time again, private student loan borrowers left out of many of the programs they really need,” said Persis Yu, deputy executive director at the Student Borrower Protection Center.

D3sign | Moment | Getty Images

As the affordable options and relief measures for federal student loan borrowers pile up, consumer advocates advise caution before refinancing your debt.
“How’s this for a warning? DON’T!” Betsy Mayotte, president of The Institute of Student Loan Advisors, wrote in an email to CNBC.

Refinancing your federal student loans turns them into a private student loan and transfers the debt from the government to a private company. Borrowers usually refinance in search of a lower interest rate.
However, many people don’t realize what they’re getting into, said Persis Yu, deputy executive director at the Student Borrower Protection Center.
“We’ve seen aggressive marketing by a number of private lenders to try to lure folks away from the federal student loan space,” Yu said. “And we have seen, time and time again, private student loan borrowers left out of many of the programs they really need.”
More from Personal Finance:Interest rates on federal student loans may increase by 1 percentage pointIRS: Time to claim $1 billion in tax refunds from 2020 expires May 17New grads may have a harder time landing their dream job
Mayotte has witnessed the same: “Borrowers who refinance their federal loans into private forever lose access to the safety nets and lower payment options unique to federal loans.”

David Green, CEO of Earnest, an online lender, said that refinancing can be “life-changing” for those who are excluded from the government’s relief options because of their earnings or other reasons.
“Consider taking advantage of [forgiveness] before looking at refinancing,” Green said.
“While we can’t predict the future of forgiveness options, if you make above the initial salary limit the federal government proposed, or otherwise don’t qualify for a loan forgiveness program, then refinancing might be a good option to explore,” he said.
“You may spend less time paying off your loan, or have a more reasonable monthly payment, which can save a significant amount in interest over the life of your loan,” Green added.

Refinancing is risky ahead of Plan B forgiveness

Consumer advocates have long pointed out that private lenders don’t provide the same range of relief options as does the U.S. Department of Education. (For example, federal student loan borrowers can pause their payments if they become unemployed, return to school or get cancer.)
But advocates have fresh warnings now as the Biden administration reforms the federal student loan system.
While President Joe Biden has been in office, the Education Department has cleared the federal education loans of nearly 4.6 million people, totaling almost $160 billion in aid. Most of that relief came through expanding access to relief programs.
Millions more federal student loan borrowers could receive debt forgiveness in the coming months if Biden’s revised relief package survives legal challenges this time.
Immediately after the Supreme Court blocked the president’s first aid package, his administration began working on a Plan B. More than 25 million borrowers still stand to benefit from the program, including those who’ve been in repayment for decades or seen their balance grow from interest.

Borrowers lose access to relief programs

Borrowers who refinance their loans lose their eligibility for the government’s debt cancellation, Mayotte said.
One potential loss is no longer qualifying for the Public Service Loan Forgiveness program, she said. PSLF allows certain not-for-profit and government employees to have their federal student loans cleared after 10 years of on-time payments.
“I’ve worked with too many borrowers who have done [refinancing] only to find out their loans would have been forgiven under PSLF,” Mayotte said.

Mayotte also recently heard from one borrower who said they’d refinanced based on advice from their financial advisor — and as a result, missed out on having their more than $400,000 balance forgiven when the Education Department excused 317,000 former Art Institute students of their debts earlier this month.
“[It] was heartbreaking,” Mayotte said.
The U.S. Department of Education, which reviewed evidence provided by the attorneys general of Iowa, Massachusetts and Pennsylvania, concluded that the for-profit Art Institute chain of schools and its parent company, the Education Management Corp., or EDMC, made “pervasive and substantial” misrepresentations to prospective students about post-graduation employment rates, salaries and career services.

Repayment options are a ‘huge, huge difference’

Income-driven repayment plans, meanwhile, allow federal student borrowers to pay just a share of their discretionary income toward their debt each month. The plans also lead to debt forgiveness after a certain period, usually somewhere between 10 and 25 years.
Most recently, the Biden administration introduced a repayment plan that lowers the percentage borrowers need to pay of their earnings to 5%, compared with 10% or more under existing programs. The new option, called The Saving on a Valuable Education, or SAVE plan, will leave some people with a monthly bill of $0.
“There is no right to an affordable repayment plan with private student loans, and that’s a huge, huge difference between the federal student loan space and the private loan space,” Yu said.

Much lower interest rate not a guarantee

The top reason people refinance their federal student loans is to pick up a lower interest rate. But that may not be so easy to do right now, said higher education expert Mark Kantrowitz.
“Interest rates are high,” Kantrowitz said, estimating that those who refinance pick up a rate between 5% and 11%. (The rates on federal student loans for the 2024-2025 academic year will range from roughly 6.5% to 9%.)

Refinancing likely only makes sense for borrowers with the best credit — a score above 800 — since they’re the only ones likely to gain a significantly lower interest rate, Kantrowitz added.
Still, any borrower considering the move should look closely at what protections and possible forgiveness opportunities they’re forfeiting, he said.

Don’t miss these exclusives from CNBC PRO More

Collectively, Americans owe $1.12 trillion on their credit cards, the Federal Reserve Bank of New York reported Tuesday.
The average credit card balance is now $6,218, a new report by TransUnion found.
As consumers lean on their credit cards, more borrowers are also falling behind on their payments, both reports show. 

Keeping up with credit card debt is getting more difficult.
Americans now owe $1.12 trillion on their credit cards, the Federal Reserve Bank of New York reported Tuesday.

The average balance per consumer stands at $6,218, up 8.5% year over year, according to a separate quarterly credit industry insights report from TransUnion.
“Consumers continue to use credit, and in particular credit cards, as they navigate the world we face right now,” said Charlie Wise, TransUnion’s senior vice president of global research and consulting. 

Higher prices and higher interest rates have put many households under pressure and prices are still rising, albeit at a slower pace than they had been.
The consumer price index — a key inflation barometer — has fallen gradually from a 9.1% pandemic-era peak in June 2022 to 3.4% in April.
Young adults, especially, have had to stretch financially to cover rising rents, ballooning student loan balances and larger auto loan payments, Wise said.

“Rent, when you have it, auto loans, utilities, these are all things consumers prioritize ahead of credit cards,” Wise added.
As a result, credit card delinquency rates are higher across the board, the New York Fed and TransUnion found. Over the last year, roughly 8.9% of credit card balances transitioned into delinquency, the New York Fed reported.
According to TransUnion’s research, “serious delinquencies,” or those 90 days or more past due, reached the highest level since 2010.
More from Personal Finance:More Gen Z cardholders are maxed out, New York Fed findsAmericans can’t stop ‘spaving’ — how to avoid this financial trapShoppers embrace ‘girl math’ to justify luxury purchases
Overall, an additional 19.3 million new credit accounts were opened in the fourth quarter of 2023, boosted in part by subprime borrowers looking for cards with higher limits, according to Wise. Subprime generally refers to those with a credit score of 600 or below, according to TransUnion. 
“Although access to credit and loans can provide a lifeline for families struggling to meet basic needs, relying too much on these financial coping strategies may lead to financial instability if families have a hard time keeping up with debt or do not recover from using savings not intended for routine expenses,” said Kassandra Martinchek, senior research associate at the Urban Institute. 

This is ‘your highest-cost debt by a wide margin’

Credit cards are one of the most expensive ways to borrow money. The average credit card charges a near-record 20.66%, according to Bankrate.
“If you have credit card debt, this is probably your highest-cost debt by a wide margin,” said Ted Rossman, Bankrate’s senior industry analyst. “Paying it down needs to be a household priority.”
With an average annual percentage rate of 20%, if you made minimum payments toward the average credit card balance, which currently stands at $6,218, according to the TransUnion report, it would take you 18 years to pay off the debt and cost you more than $9,200 in interest, Rossman calculated.
“Try to pay way more than the minimum — pay it all if you can,” Rossman said.
Otherwise, switch to an interest-free balance transfer credit card “to pause the interest clock for up to 21 months,” he advised, “or take on a side hustle, sell stuff you don’t need or cut your expenses in order to dedicate more money to your debt payoff efforts.”
Subscribe to CNBC on YouTube.

Don’t miss these exclusives from CNBC PRO More

Incentives are coming back to the auto market, but interest rates remain high.
However, car shoppers can still reap the benefits. It will require more research and flexibility.
“Consumers can find good deals, but you have to go model by model,” said Brian Moody, executive editor at Kelley Blue Book.

Simonskafar | E+ | Getty Images

Incentives are coming back to the auto market, but high interest rates are weakening those deals for car shoppers.
“Pre-pandemic, people would see a 0% financing for 60 months and think, ‘no big deal,’ because it was available everywhere,” said Jessica Caldwell, an insights analyst at Edmunds, an auto research site.

In today’s market, consumers are more likely to see it as “free money,” she said, especially as auto loan rates stay high.
The average annual percentage rate for a new car loan was 7.1% in the first quarter of 2024, marking the fifth month in a row of rates more than 7%, according to Edmunds.
The APR for used car loans rose 11.7% in the same period, up one-tenth of a percentage point from the prior quarter.
More from Personal Finance:’529 plans are better now than they’ve ever been,′ expert saysHere’s the inflation breakdown for April 2024 — in one chartBiden, Trump face ‘massive tax cliff,’ experts say
Despite high borrowing costs, car shoppers can still reap some benefits from reintroduced financing offers and other incentives like discounts and dealer cash. But shoppers must to do more research than in that earlier era to find those deals, experts say. 

“Consumers can find good deals, but you have to go model by model,” said Brian Moody, executive editor at Kelley Blue Book.

Be cautious about longer loan terms

Financing offers depend in part on the loan term. You might get a better interest rate with a short term, but a lower monthly payment with a long term.
While extending the life of the loan can help shrink monthly costs, you risk owing more than what the car is worth, which can create more financial problems later on, experts say.
“The negative equity situation is real,” Edmunds’ Caldwell said.
Shoppers must be realistic about how long they plan to keep the car, Caldwell explained.
If you’re someone who buys a new car every three to four years, you might end up in a situation when you trade in that your vehicle and is worth less than you owe, she said.
The share of new car purchases in that situation — known as a negative-equity trade-in — rose to 23.1% in the first quarter, according to Edmunds. That’s up from 18.3% from a year ago and 14.7% in the first quarter of 2022.
The average amount of negative equity jumped to an all-time high of $6,167 in the first quarter, researchers found.

When you roll that into your new car loan, it increases your payment.
The average monthly payment for new car shoppers who traded in underwater loans was $887 in the first quarter, according to Edmunds. The average APR was 8.1% for a term length of 75.8 months.
When you’re comparing financing options, instead of only focusing on lowering the monthly payment, be sure to figure out the total interest you will be paying, experts say.
“That’s where you have to be cognizant,” Caldwell said. “Longer loan terms will always look more attractive because they’re more affordable, but that’s really only part of the story.”
According to Moody: “The quicker you pay it off, the less interest you’re paying.”

What to do before you go to the auto dealer

1. Search for available incentives: Car shoppers will have to a do lot more shopping and research to find available incentives, Caldwell said.
“There are deals creeping out there,” she said. “There was a point two years ago where there just wasn’t any; no deals to be had.”
Seek out models that are not in high demand, as automakers and dealers “rarely incentivize popular” models, Moody said.
“There might be cash back or low financing on one type of Ford, but on [another] type, there’s nothing,” Moody said. “It makes it more challenging for consumers because you really have to go and do your research.” 
2. Know your credit score: While shoppers might come across 0% financing offers, those deals are often reserved for buyers with excellent credit. Find out what your latest score is to avoid getting stuck into deals you didn’t fully understand, Moody explained.

3. Get pre-qualified for different loans: Shop around for auto loans at different banks or credit unions before going to the dealer, experts say.
That lets you determine what kind of interest rate you’re able to get and compare offers, Moody said.
Don’t limit yourself to comparing the monthly payments. Consider the amount of interest you will be paying over the life of the loan, Caldwell said.
Having these options will also help you negotiate with dealers.
“Always give the dealer the opportunity to beat that deal in terms of interest rate and the loans terms, and oftentimes, they can,” Moody said. “If they can’t, you already have this loan.”

Don’t miss these exclusives from CNBC PRO More

New government data shows inflation may be showing signs of easing. That may be good news for retirees and people approaching retirement.
The Social Security cost-of-living adjustment, or COLA, may be 3.2% in 2025 based on the latest government inflation data, according to one estimate.
Two risk factors determine how much those groups are affected by high inflation, new research finds.

Lourdes Balduque | Moment | Getty Images

High inflation eased slightly in April, which may provide some relief to consumers who have been contending with elevated prices.  
For retirees and people approaching retirement, higher than normal inflation poses unique challenges.

Most retirees have access to one of the few inflation-adjusted sources of income — Social Security — that is adjusted every year to keep pace rising costs.
This year, Social Security beneficiaries saw a 3.2% increase to their benefits.
The Social Security cost-of-living adjustment may also be 3.2% in 2025 based on the latest government inflation data, estimates Mary Johnson, an independent Social Security and Medicare policy analyst.
That estimate may change between now and October, when the Social Security Administration announces next year’s cost-of-living adjustment, or COLA. The average Social Security COLA has been 2.6% over the past 20 years, according to The Senior Citizens League.

While Social Security benefits are keeping pace with price increases, the effects may vary for individuals depending on their personal expenses and where they live, noted Laura Quinby, senior research economist at the Center for Retirement Research at Boston College.

“It’s getting ninety percent of the way there for most households every year, which is just incredibly valuable,” Quinby said.
Yet even with inflation-adjusted benefits, retirees have struggled with higher prices since inflation rose in 2021. And near-retirees have also faced challenges planning for a new life phase amid a rising cost of living.
That can both reduce their current spending and diminish their accumulation of wealth for the future.
New research from the Center for Retirement Research looks at exactly how inflation has impacted people who fall in those groups — near-retirees under age 62 and retirees ages 62 and up.
Two factors determine how well they can manage inflation’s shocks — whether their income and investments can keep pace with rising prices, and the amount of fixed-rate debt they have, the research found.

How inflation affects household wealth

Inflation impacts an investor’s portfolio assets.
While bonds and fixed-income assets may see price increases, equities may do well, so long as the economy avoids a recession, according to the CRR research.
Households with more wealth tend to fare better amid high inflation, because they’re more likely to be invested in stocks and businesses that continue to grow in value.
Retirees tend to have most of their income from either Social Security or defined benefit pensions. While Social Security is adjusted for inflation, pensions generally are not — a disadvantage for retirees who rely on them.
More from Personal Finance:As Social Security’s funds face insolvency, here’s what to watchWhy most of Warren Buffett’s wealth came after age 65Advice about 401(k) rollovers is poised for a big change. Here’s why
Near-retirees are more likely to rely on earnings from work. If their salaries do not keep up with inflation, they are more likely to be affected by higher costs.
More affluent near-retirees may have other sources of income from investments or businesses that grow with inflation. Others may already be collecting pension income.
Households with fixed-rate mortgage debt are at an advantage, since their monthly payments stay the same even as inflation rises. Near-retirees tend to benefit from that, since they are more likely still have mortgages compared to retirees.

How older households react to inflation

When inflation prompts higher costs, it can have a negative impact on both immediate consumption and how much goods and services a household can buy, as well as future consumption, Quinby noted.
Many households tend to cut back on savings and increase withdrawals to try to lift themselves to where they were before inflation picked up.
“But it comes at a cost, which is that they take they take a big hit to their future wealth by doing that,” Quinby said.

Near-retirees who are still working have more flexibility to adjust to higher inflation compared to retirees, since they’re likely to see wage gains.
Pre-retirees who stay in the work force may be able to make up for lost savings if they’re able to catch a time when wages overshoot inflation, Quinby said.
However, just 4% of near-retirees surveyed for the research changed their retirement age in response to inflation, with a four-year average expected delay. Among all near retirees, 34% adjusted their retirement date.
Retirees have less flexibility to address the effects of high inflation. But where they can, they can take advantage of higher interest rates by reinvesting fixed-income investments that may be earning less, the research suggests. More

The consumer price index rose 3.4% in April from a year earlier, a decrease from 3.5% in March, according to the Bureau of Labor Statistics.
Gasoline and housing prices put upward pressure on inflation, while prices for categories like groceries and new and used cars fell in April.
Consumer buying power rose over the past year as inflation moderated.

Grace Cary | Moment | Getty Images

Inflation fell slightly in April as easing price pressures for groceries and other areas of consumer balance sheets were partially offset by higher gasoline prices and stubbornly high housing costs.
The consumer price index, a key inflation gauge, rose 3.4% in April from a year ago, the U.S. Labor Department reported Wednesday. That’s down from 3.5% in March.

The report “is consistent with inflation, while still uncomfortably high, slowly coming back to earth,” said Mark Zandi, chief economist at Moody’s Analytics.

The CPI gauges how fast prices are changing across the U.S. economy. It measures everything from fruits and vegetables to haircuts, concert tickets and household appliances.
The April inflation reading is down significantly from its 9.1% pandemic-era peak in 2022, which was the highest level since 1981. However, it remains above policymakers’ long-term target, around 2%.
The decrease in April marks progress in the inflationary fight, which had somewhat flatlined in the first quarter of the year after falling consistently through much of 2023.

The inflation trend line will determine how soon Federal Reserve officials start throttling back interest rates, which influence borrowing costs for consumers and businesses.

“After getting stuck at the beginning of the year, we’re starting to see [inflation] moderate again,” Zandi said. “And I expect to see that going forward.”

Food inflation has ‘basically gone to zero’

Gasoline prices increased 2.8% in the month from March to April, a rise from 1.7% the prior month, the Bureau of Labor Statistics said.
“You saw prices at the pump rise again in April,” said Michael Pugliese, a senior economist at Wells Fargo Economics.
Average U.S. gasoline prices jumped about 13 cents in April, to $3.65 a gallon as of April 29, according to weekly data published by the U.S. Energy Information Administration.

That increase is largely due to dynamics in the market for crude oil, which is refined into gasoline, economists said. Higher fuel prices can filter through to many other areas of the economy since they factor into transportation and distribution costs for goods, for example.
Gas prices have since retreated a bit to $3.61 per gallon as of May 13, according to the EIA.
Among other consumer staples, grocery prices decreased by 0.2% from March to April, meaning they deflated rather than inflated, according to the CPI data. “Food at home” prices rose 1.1% in the past year.
“Food inflation has basically gone to zero,” Zandi said. “I think that’s really important for most American families, not only for their own financial situation but because of how they perceive the economy.”

Progress on housing has been slow

Economists generally like to consider an inflation measure that strips out energy and food prices, which can be volatile, to determine prevailing inflation trends. That reading, known as the “core” CPI, fell to an annual 3.6% in April from 3.8% in March.
Shelter, the largest spending category for the average household, is by far the biggest component of the “core” CPI. Annual housing inflation declined to 5.5% in April from 5.7% in March.
More from Personal Finance:GameStop, AMC rallies like ‘watching a sitcom on repeat’Education Dept. announces highest federal student loan interest rate in over a decadeBiden, Trump face ‘massive tax cliff’ amid budget deficit
Positive data trends like moderating prices for newly signed rental leases suggest housing inflation should continue to ease, economists said. However, that process hasn’t happened as quickly as expected.
“It’s one of the reasons we’ve seen slow progress” in the inflation fight, said Stephen Brown, deputy chief North America economist at Capital Economics.
Shelter and gasoline inflation combined contributed more than 70% of the monthly CPI increase for all items, according to the BLS.

Other “notable” areas in core inflation over the past year include motor vehicle insurance (prices are up 22.6%), personal care (3.7%), medical care (2.6%) and recreation (1.5%).
Meanwhile, other consumer categories have seen improvement.
For example, prices for new and used vehicles decreased 0.4% and 6.9% in the past year, respectively. Those lower costs should filter through to help motor vehicle insurance inflation fall, too, economists said.

Supply and demand imbalances

At a high level, imbalances in supply and demand are what trigger out-of-whack inflation.
For example, the Covid-19 pandemic disrupted supply chains for goods. Americans’ buying patterns also simultaneously shifted away from services — such as entertainment and travel — toward physical goods since they stayed at home more, driving up demand and fueling decades-high goods inflation.
Those dynamics have largely unwound, economists said. Rather, inflation is now “more of a services story than it is a goods story,” Pugliese said.
Wage growth has been one contributor to services inflation, for example, economists said.

The services sector of the U.S. economy tends to be more sensitive to labor costs. Record-high demand for workers as the pandemic-era economy reopened pushed wage growth to its highest level in decades; the labor market has since cooled and wage growth has declined, though remains above its pre-pandemic level.
“Until we observe meaningful signs of deterioration in either the labor or housing markets, we expect continued stickiness in inflation measures,” Joe Davis, global chief economist at Vanguard, wrote Tuesday.
Wage growth has surpassed the inflation rate over the last year, meaning consumers have been able to buy more with their paychecks. So-called real average hourly earnings rose 0.5% from April 2023 to April 2024.

Don’t miss these exclusives from CNBC PRO More