This past year inflation has been eating at everyone’s salaries.  For people on a fixed income, retirees, this hit probably has been tougher than most.  On 7/1/2008 my mom was told that the union was refused when they asked for a cost of living raise.  Instead they will continue on the set raise of 2%/annually.

What does that mean?  Well every year she gets 2% of her base pension.  Say it’s $3500/month or $42k/year, she gets $70/month or about $1k/year.  Sounds good right?  Not really.  Problem?  First her raise is not compounded. Every year she’ll get $1k more than last year, but that will likely not keep up with inflation. 

In 10 years she’ll be making $52k/year but what will it be really worth?  Since this pension is the bulk of her retirement plan, she should be concerned.  Currently in 10 years her plan is to collect social security and have that supplement the lack of purchasing power of her pension. 

But I wonder if this is a new move by pensions to save money?  That they pay you the same amount 20-30 years after you retire, and thus decrease the amount of money they need to pay in the future?

What is the solution to preventing inflation from eating into your retirement?  Right now I’m not sure. I have no answer other than save a portion of the pension and invest it for the future to make up for inflation.  Do you think this is another way pensions are getting downsized?