Inflation is something we all hear about, but how does it actually affect your retirement plans? Let’s break down what inflation means and how it can change the way you think about your retirement income and expenses.
What is Inflation?
Inflation is the gradual rise in the cost of goods and services over time. A small amount of inflation is a normal part of a healthy economy, but it can have a big impact over the long term. For retirees, this means the money you save today might not go as far in the future.
How Inflation Affects Retirement
As prices rise, your savings lose some of their buying power. This can be a major issue for retirees who live on fixed incomes, such as pensions or Social Security. Even a modest inflation rate of 2–3% each year can significantly reduce the value of your savings over a 20- or 30-year retirement.
For example, if inflation averages 3% per year, what costs $100 today will cost about $180 in 20 years. This means you’ll need more money to maintain the same standard of living.
The Impact on Retirement Spending
Inflation doesn’t affect every expense equally. Healthcare costs, for example, often rise faster than overall inflation. According to the U.S. Bureau of Labor Statistics, medical care prices have historically grown at a faster rate than other goods and services. This can be a real challenge for retirees, who typically spend more on healthcare as they age.
Other costs, such as housing and utilities, can also rise over time. If your retirement income doesn’t keep pace, you may have to cut back in other areas to make ends meet.
Protecting Your Retirement from Inflation
There are steps you can take to help protect your retirement from inflation:
- Investing for growth: Stocks and other growth investments have historically outpaced inflation over the long term. Having some exposure to growth investments in your retirement portfolio can help your money maintain its purchasing power.
- Diversifying your income: Relying on a single source of income, like Social Security, may not be enough to keep up with inflation. Diversifying your income sources—such as pensions, retirement accounts, or part-time work—can provide more stability.
- Regular reviews: Checking in on your retirement plan regularly can help ensure your investments and spending are keeping up with inflation.
- Spending adjustments: Being flexible with your spending and adjusting your budget as needed can also help your savings last longer.
The Importance of Personalized Planning
Inflation is just one of many factors that can affect your retirement plan. When we work together to build your plan, we look at how inflation fits into the bigger picture:
- How your investments are positioned to grow over time
- How different sources of income can help offset inflation
- How your spending might change as you age
- How unexpected expenses, like healthcare or family support, could impact your budget
We also stress-test your plan to see how it would perform if inflation rises more than expected. This may help you feel confident that your plan can weather different economic environments.
Bottom Line
Inflation can be a silent but significant risk in retirement. But with thoughtful planning, you can help protect your savings and maintain your lifestyle. If you have questions about how inflation could impact your retirement, let’s talk. We’re here to help you create a plan that’s built to last.
Reference:
U.S. Bureau of Labor Statistics: Consumer Price Index: https://www.bls.gov/cpi/
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Velekei Giles Financial Advisors is a separate entity from Valmark Securities, Inc. and Valmark Advisers, Inc.
This material is for informational purposes only and is not intended to provide specific advice or recommendations for any individual nor does it take into account the particular investment objectives, financial situation, or needs of individual investors.
Past performance does not guarantee future results. Diversification does not guarantee investment returns and does not eliminate the risk of loss.