Inflation & Retirement

What is Inflation?

Inflation is the decline of purchasing power of currency and the general increase in prices of goods and services over time.  This means that a unit of currency buys less today than it did in years past.  Over the last few years, the inflation rate has grown considerably, which has impacted our cost of living and resulted in the slowing of economic growth.  

Inflation is caused by an increase in the supply of money and credit that overstimulates the economy.  Inflation can be further driven when the demand for goods and services exceeds the production capacity rising production costs and increasing prices, or when prices and wages rise to maintain cost of living.   

How does Inflation Affect Retirement?

One of the goals of estate planning is to put enough money away for retirement.  However, it can be difficult to know what things will cost in the future and the one thing that most people don’t consider when planning for retirement is inflation. 

Inflation has a significant influence on the value of your retirement dollars, the cost of living, the cost of medical and healthcare services, and the federal government’s contribution to qualified retirement plans and Social Security benefits.  Therefore, it is important and beneficial to allow for inflation when making your retirement plans. 

According to the LIMRA Secure Retirement Institute, research shows that a 2% annual inflation rate can cause a shortfall of $73,376 in retirees’ benefits at the end of a 20-year period.  This model is based on a fixed monthly income of $1,341, which is the average monthly benefit paid by Social Security.

3 Way to Protect Your Investments & Assets

How can you minimize the impact of inflation on your retirement plans? Here are three recommendations that can help:

1. Maximize your Social Security

Choose to defer your Social Security Income until you are 70, which ensures that you get the most out of your benefits

2. Select investments that increase with inflation

Some investments and insurance products are more likely to adjust to inflation better than others.  The exchange may be less income now, but the future payoff will increase profitability. 

Potential investments are:

  • TIPS (Treasury Inflation Protected Securities)
  • Inflation Indexed Immediate Annuities
  • Inflation Protected Bond Funds
  • Floating Rate Funds
  • Dividend Paying Stock Index Funds
  • Real Estate

Insurance products:

  • Long-term Care Insurance
  • Term Life Insurance
  • Whole Life Insurance

3. Reduce Expenses

Reduce housing costs and unnecessary spending.  Create a realistic retirement budget to maximize financial assets.


Being prepared and using the best financial tools can help you prepare for retirement.  If you have any questions about how today’s inflation rates may impact your retirement, please contact our firm or your trusted financial advisor.