Jul 21, 2022 By Gary Boatman for The 4 min read

Members of the middle-class has been the bedrock of America for our entire existence. They operate the factories, staff the hospital, teach the students and fill all of the other positions that allow the country to operate. They also pay the taxes, volunteer to lead all the organizations and make the United States the best country in the world.

Right now, 75% of middle-class households say their income is falling behind the cost of living. Inflation is at a 40-year high. Even though wages are rising, they are not keeping up with rising prices. It is estimated that 77% of them expect us to suffer a recession before the end of 2022. The last reading of hourly wages showed a 5.1% increase, but inflation was up 9.1%. It is important to remember that inflation hurts lower income people more than wealthier people because a larger portion of their spending goes for necessities.

If a recession arrives, some people will lose their jobs. This means that it is important to try to save money for an emergency fund. While this is difficult with rising prices, it is necessary to get through even tougher times. A scary trend has been developing where the use of credit cards has been moving upward. Consumer balance is $840 billion, which is $71 billion more than a year ago. This debt carries some of the highest interest rates in the country. Because of this it is important to have a plan to try to pay off your balance each month.

Past generations had a big advantage over today’s retirees. It used to be that most workers got a defined benefit pension when they retired. Today, that is not true unless you work for a very large company or government entity. This means that workers today must defer some earning into things such as 401(k)s and IRAs so that they will have savings to supplement Social Security income.

It is important that people use a shopping list today to get what they need and not buy a lot of extra impulse items that could strain their budget. Plan your menu around items that are on sale. You need to plan trips in the car to save gas. While the price has come down somewhat recently, gas is up more than a dollar over last year. Explore low-cost entertainment options, such as going to local parks and other inexpensive options.

Seniors are often negatively affected by inflation because they live on fixed incomes. In 2022, Social Security beneficiaries received a record 5.9% boost in benefits, the highest increase in 40 years. This year’s increase will most likely be much higher. The Social Security Administration calculates the annual adjustment by taking an average of the third-quarter data from the current year and comparing that to the third quarter of the previous year. If things keep going the way they have so far, that could be between 8 and 10% Remember, this increase does not put you ahead but just tries to keep up with the loss of purchasing power. This is just one more reason it is important to maximize Social Security income. It is one of the few retirement assets with a cost-of-living adjustment.

It will not be easy, but the middle class will overcome these economic challenges. They have a perfect record of handling any problem when working together. It will happen again this time.

Your Financial Future is written by certified financial planner Gary W. Boatman, MBA and CFP, who also wrote the book, “Your Financial Compass: Safe Passage Through The Turbulent Waters of Taxes, Income Planning and Market Volatility.” If there is an area that you would like to see discussed in the column, send your suggestions to gary@BoatmanWealthManagement.com.