It comes as no surprise that Americans are paying more for necessities than they did last year, and in response, they’re tightening their belts thanks to inflation.

So much so that a Lightspeed survey found that one in four consumers will shop on Black Friday only for everyday essentials, such as groceries, toiletries and household basics (1).

Many working Americans aren’t stretching their dollars further in retirement either. About 55% of adults surveyed by Prudential this past summer said they’ve factored inflation into their retirement planning (2).

Despite this lack of planning, 89% of those surveyed have “high confidence” in covering essential retirement expenses (3). Prudential referred to this as a “confidence paradox,” where consumers have confidence despite lacking proper planning (4).

“Feeling ready is very different than actually being ready,” Caroline Feeney, global head of retirement and insurance for Prudential, told CNBC. “People feel ready, so they’re not taking the necessary action and plans now to start saving and leaning into closing what may be a real retirement gap for their futures that they’re not aware of.”

Regardless, boomers should consider inflation when planning for their retirement.

A lack of planning could become even more challenging. Baby boomers are in the midst of “peak 65,” with more than 11,200 Americans turning 65 every day through 2027 (5).

This is a time when year-over-year inflation sat at 3% in September (6), already outpacing the announced 2026 Cost-of-Living Adjustment (COLA) for Social Security benefits of 2.8% (7).

Some older Americans have already expressed that the COLA isn’t enough to cover the rising costs of health care, housing and food. Their concerns are supported by Goldman Sachs Asset Management research, which shows retirees’ spending increased 3.6% annually from 2000 to 2023, while the consumer price index rose 2.6% over the same period (8).

Many adults plan for retirement, thinking that they can cut down expenses when they retire.

“When in reality, they usually spend more because they have more time to do a lot of the things that they enjoy doing,” certified financial planner Uziel Gomez, founder of Primeros Financial in Los Angeles, told CNBC.

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While the COLA does help retirees tackle inflation better than most financial products, older Americans are still struggling.

“A 20% lift over four years is life changing, even though it might not match the economy itself,” David Freitag, a financial planning consultant and Social Security expert at MassMutual, said of the recent cost-of-living adjustments, adding, “These are significant increases that make a difference in people’s lives.”

According to a September American Association of Retired Persons, only 22% of people 50-plus feel the COLA adjustments are enough to keep up with inflation, with almost three-quarters (72%) saying it should be 5% or higher (9).

AARP’s study serves as a potential warning to those who aren’t considering increased costs in retirement.

If you’re caught in the same “confidence paradox,” you can estimate your retirement income needs by creating a retirement budget. You can detail the expenses you think you’ll have in retirement, and if you think you need help, work with a financial advisor. You could model how this budget might be impacted by inflation over time and how much you’ll need to compensate for unexpected changes.

A financial advisor can also help you set up an investment program to build your retirement savings. They can also help plan your retirement investment and withdrawal strategies to account for inflation.

It’s better to start sooner rather than later to avoid unpleasant surprises in your retirement.

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Lightspeed HQ (1); Prudential (2); (3), (4), Protected Income (5), (6); Social Security (7); Goldman Sachs Asset Management (8); American Association of Retired Persons (9).

This article originally appeared on Moneywise.com under the title: ‘Peak 65’ boomers can’t tell if they’re ready to retire, and this ‘confidence paradox’ could cost them big in retirement

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