5 Things You Need To Know About Inflation If You Ever Want To Retire

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Inflation can quietly erode retirement savings, diminishing the future purchasing power of money saved today. As prices rise, it becomes increasingly important to build a retirement plan that accounts for higher living costs over time. 

Here are five things you need to know about inflation if you ever want to retire. 

Inflation Affects Everything

Inflation doesn’t just raise prices. It reshapes the entire financial landscape, from daily spending to retirement income. 

“Inflation can unravel much like a domino effect,” said Daniel Gleich, CEO and president of Madison Trust Company. “A change in our economic landscape will likely trickle down into a variety of aspects typically pertaining to our day-to-day lives.” 

Gleich said that fixed sources, such as pensions, may lose purchasing power, and even market-based investments can experience downturns when inflation ripples through the economy.

“Equally, anyone who participates in publicly-traded products like stocks, bonds and mutual funds might endure a significant dip in their retirement investments,” Gleich said. “The stock market and our economy’s theme are generally correlated.”

Build a Cash Cushion Wisely

While it’s important to keep some cash for emergencies or near-term expenses, too much sitting in low-yield accounts can quietly lose value in a high-inflation environment.

“Many retirees feel secure keeping large sums of cash or equivalents (money markets, CDs),” said Chad Gammon, a certified financial planner (CFP) and owner of Custom Fit Financial. “That is fine to do for a period of time, but sometimes retirees have a decades’ worth of cash, and it won’t keep up with inflation and could impact their retirement.”

Park Your Money Smartly

In a high-inflation environment, it’s essential to park money in places that help maintain purchasing power. Treasury Inflation-Protected Securities (TIPS) and I Bonds are specifically designed to rise with inflation, making them strong tools for long-term value preservation.

For shorter time horizons or emergency savings, high-yield savings accounts and certificates of deposit (CDs) can also play a role. 

“You can prioritize safe, guaranteed investments like CDs and high-yield savings accounts to earn interest and fight inflation,” said Cetin Duransoy, U.S. CEO at Raisin. “Even modest amounts can grow meaningfully over time when placed in competitive, insured savings products, and that kind of consistency is key in a high-cost environment.”

While they don’t adjust with inflation directly, the stable, guaranteed returns of CDs and high-yield savings accounts, especially in a high-rate environment, can help offset rising costs and keep cash from losing value too quickly.

Plan for Rising Healthcare

Healthcare expenses often rise faster than overall inflation, and they typically increase as people age. 

According to the latest Fidelity Retiree Health Care cost estimate, the average 65-year-old couple retiring today can expect to spend around $330,000 (after tax) on healthcare costs throughout retirement, not including long-term care. 

Retirement plans that don’t account for escalating medical costs risk underestimating one of the biggest long-term expenses, especially in the final decades of life.

“If eligible, you may want to look into contributing to a health savings account (HSA),” Gleich said. “One of the most prevalent mistakes retirement savers may make is to only save for a set number of years.

“None of us can predict the future, and the average lifespan is only continuing to increase. Some may save for 15 or 20 years but then need funds for another five to ten. All in all: The more you save, the better off you’ll likely be.”

Invest in Tangible Assets

Alternative investments, such as real estate and precious metals, can help protect a retirement portfolio during periods of inflation.

“These assets typically remain valuable, or increase in value, in times of inflation,” Gleich said. “Furthermore, physical, tangible assets — like real estate and precious metals — are likely to never reach a zero-dollar value. Both land and precious metals like gold and silver hold historical reverence, along with a track record of persisting throughout centuries of monetary unpredictability.”

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