Latest / Inflation and Your Money with Fexingo: Protecting Purchasing Power and Beating Inflation / Why Inflation Hits Older Workers Hardest
Transcript
- Lucas: We talk a lot on this show about how inflation hits different categories unevenly — rent versus groceries, services versus goods. But there's another asymmetry that gets way less attention: how inflation hits different age groups. Luna: You mean generational inflation experience? Because I've seen headlines about Boomers being 'insulated' because they own homes and have Social Security COLA. Lucas: Right, that's the conventional wisdom — and there's truth to it for retirees on fixed incomes with COLAs. But I want to focus on a group that's kind of in between: workers over 55 who are still in the labor force. They are actually getting squeezed harder than younger workers. Luna: Wait — you're saying older workers are losing purchasing power faster? Even as headline wage growth has been positive? Lucas: Exactly. Let me give you the numbers. The April CPI — the most recent print we have, from earlier this month — showed all-items inflation at about 3.3 percent year-over-year. Core CPI, excluding food and energy, was 3.35 percent. Meanwhile, the Atlanta Fed's Wage Growth Tracker shows overall wage growth around 4.5 percent. So on average, wages are beating inflation. Luna: But the average is hiding something. Lucas: It's hiding a lot. When you break it down by age, workers aged 16 to 24 have seen wage growth north of 6 percent. Workers 25 to 54: around 4.3 percent. But workers 55 and older? About 3 percent. That's below the current inflation rate. So their real wages are actually falling. Luna: So someone in their late fifties or early sixties who's still working is effectively getting a pay cut every year, in purchasing power terms? Lucas: That's exactly what's happening. And it's been going on for about two years now. There's a paper from the Harvard Kennedy School that came out last quarter that looked at this specifically — they call it the 'wage stickiness penalty' for older workers. The core insight is that older workers change jobs far less frequently than younger ones. Luna: Which matters because the biggest wage gains come from switching jobs — the 'job-switching premium'. Lucas: Right. In this labor market, job switchers have been getting raises of 6 to 7 percent. Job stayers — people who remain with the same employer — are getting 3 to 4 percent, if they're lucky. And older workers are predominantly job stayers. The Harvard study found that workers over 55 are about half as likely to switch jobs in any given year compared to workers aged 25 to 34. Luna: So the very behavior that's prudent in normal times — stability, loyalty to an employer — becomes a financial penalty during an inflationary period. Lucas: Exactly. And it's not just about switching jobs. There's also a structural issue with how cost of living adjustments work within companies. A lot of large employers tie annual raises to a budgeted merit pool that's set at the beginning of the fiscal year. Those pools were set in late 2025, when inflation was expected to moderate. They budgeted 3 percent. But inflation hasn't moderated as much as expected — it's hovering around 3.3 percent. So even the 'cost of living' component of those raises is too low. Luna: Meanwhile, the Fed has kept rates at 3.64 percent on the effective funds rate — flat since April. No rate cuts yet. So borrowing costs remain high, and that also disproportionately affects older workers who might be carrying mortgage debt or variable-rate debt. Lucas: That's a great point. The Fed's stance — waiting for more evidence that inflation is sustainably moving toward 2 percent — means higher rates persist. For an older worker who maybe downsized or took out a HELOC, that's a real cash-flow hit on top of lagging wage growth. Luna: So what's the advice for someone in that demographic who's listening? Don't just accept the 3 percent raise? Lucas: That's one option — negotiate. But I think there's a deeper implication for retirement planning. If you're 55 to 62 and still working, but your real income is declining, you might be tempted to dip into retirement savings earlier than planned, or to delay retirement. But that's a double-edged sword because delaying retirement means staying in a job market where your real wages are falling. Luna: And if you're already retired and drawing from a portfolio, this matters too — because your withdrawal rate should account for the fact that your purchasing power is being eroded faster than historical averages suggest. Lucas: Exactly. The classic 4 percent rule assumes 3 percent inflation. If we're running at 3.3 percent core, that might seem like a small difference, but over a 30-year retirement, that extra 0.3 percent compounds into a meaningful reduction in real spending power. And that's before you factor in that wage growth for older workers is lagging — which means any part-time work or phased retirement income is also shrinking in real terms. Luna: There's also a behavioral angle I want to flag. The Harvard study noted that older workers are less likely to negotiate raises — they perceive it as risky or they just don't want the conflict. That's a cultural norm that might need to shift. Lucas: Yeah, and it's not just about negotiating. It's about benchmarking. If you're 58 and you've been at the same company for 15 years, you might not realize that your skills are worth 20 percent more at another firm. The information asymmetry is real. Luna: So maybe the actionable takeaway is: check the market value of your labor. Even if you don't intend to leave, knowing your worth gives you leverage. Lucas: That's a good move. And for listeners who are younger, this is a preview of something you'll face later. The job-hopping premium is real now — use it. Build your savings while you can, because the wage stickiness penalty will eventually hit you too. Luna: This is exactly the kind of conversation that I think makes a real difference in how people manage their money. And honestly, it's why I'm glad we do this show ad-free — we can dig into these asymmetries without worrying about sponsor messaging. Lucas: Yeah, and we get to keep it independent because of listeners who support the show directly. If our money conversations have helped you think about a decision differently — whether it's negotiating a raise, rethinking a withdrawal rate, or just understanding the CPI better — you can support the show at buy me a coffee dot com slash fexingo. Luna: Even a small contribution helps us keep the lights on and the hosts caffeinated. Lucas: Exactly. No pressure — just if it's valuable to you. Now, back to the wage stickiness penalty: one other data point I want to flag is that the 10-year breakeven inflation rate — the market's expectation for average inflation over the next decade — is at 2.40 percent. That's up slightly from 2.39 last week. So the bond market is pricing in that inflation will stay above the Fed's target for a while. Luna: Which means this older-worker wage gap isn't going to resolve itself quickly. If inflation stays around 2.5 to 3 percent for the next few years, and older workers continue to see 3 percent raises, they'll keep losing ground. Lucas: Right. The Fed's preferred inflation measure — core PCE — was at 129.3 in March, up from 128.9. That's a 0.3 percent month-over-month increase, annualized to about 3.6 percent. So we're not seeing a rapid cooldown. And until we do, the advice for older workers really comes down to: advocate for yourself, benchmark your salary, and don't assume a 3 percent cost of living adjustment is keeping you whole. Luna: It's a sobering picture, but an important one. Because the quiet erosion of purchasing power is exactly what we try to uncover on this show. Lucas: For sure. Next episode, we'll look at a related angle — how inflation impacts different asset classes in retirement portfolios. Spoiler: not all 'safe' assets are safe.