How To Plan for Inflation Throughout Your Retirement, According to Retirement Planners
Written by
Jordan Rosenfeld
Edited by
Molly Sullivan
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You may not notice inflation month to month, but over a 25-year retirement, it can quietly cut your purchasing power in half.
Inflation can also hit retirees harder, as their incomes are often fixed or limited, but expenses aren’t, as recent sticker shock on things like groceries and healthcare has made clear.
“Workers can often offset inflation through pay raises or career growth, but retirees don’t have that flexibility,” said Christopher Stroup CFP and owner of Silicon Beach Financial. “Instead, their focus shifts from earning more to preserving purchasing power.”
Here are ways to plan for, and get ahead of, inflation before and throughout retirement.
Inflation Erodes Retirees’ Spending Power
Inflation eats away at static income sources like pensions and CDs, according to Chad Gammon, CFP, enrolled agent and owner of Custom Fit Financial. “Retirees could have a large portion of their savings in cash or CDs, and this might not keep up with inflation,” he said. “They could also have a pension that doesn’t have a cost-of-living adjustment, which erodes as retirement years go by.”
Inflation quietly chips away at what your money can buy, Stroup pointed out. Add in rising healthcare and insurance premiums, which also outpace inflation, and you can see why it’s necessary to plan ahead for costs to increase, not decrease, in retirement.
Choosing the Right Inflation Rate for Your Retirement Plan
When it comes to figuring out exactly how high an inflation rate to prepare for, Gammon leans into 3%, which reflects “historical norms.” However, for healthcare, he uses a 7% rate “since it typically has costs that rise higher than general inflation.”
Aiming for 3% “helps stress-test a plan, ensuring retirees can maintain their lifestyle even if inflation runs higher than average,” Stroup said.
Gammon urged retirees to create plans that don’t just cover your needs but also your wants.
Where To Put Your Money So It Keeps Its Value
Knowing where to put your money is as important as saving it, Stroup said. Here are some inflation-fighting strategies:
Maintain Some Stock Exposure
Staying invested in well-tested stocks is a great way “to maintain some equity exposure in [your] portfolio,” Gammon said. Stocks have historically delivered higher long-term returns than inflation, helping preserve purchasing power.
Consider Inflation-Linked Bonds
Treasury Inflation-Protected Securities (TIPS) and I Bonds are also reliable tools for keeping pace with rising prices. Stroup said that these inflation-linked securities can anchor a retiree’s portfolio with government-backed income adjustments.
Layer Growth and Safety
Stroup recommended a balanced approach: “Keep one to two years of expenses in cash or CDs while investing the rest in diversified growth assets.”
Include Real Assets for Diversification
Assets like real estate or infrastructure can serve as natural inflation hedges, too, Stroup said. Pairing them with a tax-efficient withdrawal plan helps sustain income and preserve long-term value
Don’t Count on COLA To Cover Everything
Many people assume their retirement income automatically keeps pace with inflation, however, Stroup warned this is not always the case. “While Social Security includes annual cost-of-living adjustments (COLA), they’re based on a broad index that doesn’t fully reflect retirees’ spending patterns.”
Gammon pointed out that for those who still have pensions, those don’t come with a COLA, either, thus, “People forget how, 20 or 30 years later, they don’t provide as much as the first year of retirement.”
Social Security’s COLA is also based on the consumer price index for Urban Wage Earners and Clerical Workers (CPI-W), which doesn’t track healthcare inflation accurately.
Delaying benefits is one way to maximize lifetime inflation-adjusted payouts, Stroup said.
Pre-Retirement Moves To Soften the Blow Later
Before retiring, diversify across equities, fixed income and inflation-linked securities to build resilience, Gammon said.
Stroup added that paying down fixed debts and creating flexible income sources — like consulting work or annuities with cost-of-living adjustments — can help maintain stability. It’s also smart to stress-test your plan for higher inflation and healthcare costs and keep a credit line available for emergency liquidity.
How Flexible Planning Keeps You Ahead of Rising Costs
Those who will be most successful at staying ahead of inflation will “prioritize essential spending, adjust discretionary expenses and review budgets annually,” Stroup said.
It’s a good idea to revisit annual insurance and investments, look into downsizing when needed and use senior discounts strategically.
Inflation is inevitable, but falling behind in retirement doesn’t have to be.
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