How to Protect Your Retirement from Inflation (It May Be Rearing Its Ugly Head)

How to Protect Your Retirement from Inflation (It May Be Rearing Its Ugly Head)

Inflation is a dirty word when it comes to retirement finances. We have been lucky for a while. Over the last four decades the United States has enjoyed record low inflation rates.  That might be changing and you may want to consider ways to protect your retirement from inflation — rising inflation.
protect your retirement from inflation

Is Inflation Coming?

Jack Ablin is the Chief Investment Officer at Cresset Wealth Advisors.  He oversees the firms investment policy and strategy and guides the firm’s risk profile. Ablin is also a frequent CNBC contributor and the author of the best seller “Reading Minds and Markets: Minimizing Risk and Maximizing Returns in a Volatile Global Marketplace.”

This week Ablin reported to CNBC that the U.S. might be entering an inflationary environment due to Federal Reserve policy and the trade war.

While runaway inflation (like that seen in the 1980s) is unlikely, some investors are predicting more inflation growth than we have seen in a long time.

Many other financial outlets and analysts are echoing this prediction.

What is Inflation

Perhaps these famous people define it best:

Inflation is when you pay fifteen dollars for a ten-dollar haircut you used to get for five dollars when you had hair.
-Sam Ewing

Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man.
-Ronald Reagan

Some idea of inflation comes from seeing a youngster get his first job at a salary you dreamed of as the culmination of your career.” -Bill Vaughn

Bankers know that history is inflationary and that money is the last thing a wise man will hoard.” -William Durant

Inflation is the crabgrass in your savings.” -Robert Orben

Inflation is when sitting on your nest egg doesn’t give you anything to crow about.” -Unknown

The Fourth Edition of the American Heritage Dictionary of the English Language defines inflation as, “A persistent increase in the level of consumer prices or a persistent decline in the purchasing power of money, caused by an increase in available currency and credit beyond the proportion of available goods and services.”

Basically, inflation makes goods and services more expensive and decreases the value of your money.

Why is Inflation Disastrous for Retirees?

When you are working – your wages generally rise as the costs of goods and services increase. Your earnings “keep pace with inflation”, so normal inflation is not generally a big concern. However, when you are living off of savings – inflation literally robs you of income.

Most people underestimate the impact inflation will have on their retirement plans. Even at relatively low rates, inflation is a real thief of buying power over time.

Most experts feel safe recommending that individuals calculate their retirement needs using a 3 percent inflation rate. But, it is important to understand that we have seen (as in the late seventies and early eighties) sustained inflation rates of around 10 percent!

How to Protect Your Retirement Plan from Inflation

So, inflation is a very real threat to your ability to maintain your desired quality of life in retirement.

Below are 6 ways to protect your finances:

1. Plan for Inflation

Inflation planning should be a significant concern when crafting a retirement plan.

You should assess the health of your retirement finances at various rates of inflation.  (Don’t just trust the default values seen in many simple retirement calculators.)

You should know what will happen to your finances if inflation rises at 2% or 10%.  The NewRetirement retirement planner gives you full control over inflation rates.  In fact, this tool lets you set optimistic and pessimistic inflation values for general spending, housing and medical costs (these categories typically rise at different rates).  Try different scenarios to see if your quality of life is safe.

2. Have Back Up Plans

You need your retirement plan to be solid no matter what happens.  So, you may need to be prepared to adjust spending and your investment portfolios if inflation goes up at your predicted pessimistic levels or worse.

3. Look at Hard Assets

Real estate and commodities are investments that have intrinsic value and typically grow in financial worth.

4. Consider Debt

Traditionally, owning a house and using debt (a mortgage) has been a great way to build wealth and hedge against inflation, since you:

  • Have the hard asset – the house
  • Are using debt to finance part of the house. In recent history, inflation has helped make paying that debt off easier (assuming you are working and converting your human capital into dollars)

5. Invest Monetary Assets to Keep Pace with Inflation

You have probably heard that the older you get, the less risky your investments should be.  While this is absolutely true, you do also need your savings growth to keep pace with inflation.

Investments in stocks are typically the best way to keep up.  Treasury Inflation-Protected Securities (TIPS) are another option.

Your retirement portfolio should be carefully crafted to give you both the:

  • Growth you need so that the buying power of your assets keep up with an inflationary economy
  • Peace of mind that you won’t lose the money you need to spend

Want help with your inflation and investment strategy?  NewRetirement is planning to introduce a new advisory service through a subsidiary called NewRetirement Advisors. This will be financial advice and guidance from a certified financial advisor (CFP) who will work with you and use the NewRetirement Retirement Planner and PlannerPlus to help you manage and achieve a secure future. You can learn more here.

6. Guarantee Income with Inflation Protection

If there is a difference between your guaranteed lifetime income (Social Security and pensions) and your necessary expenses, you should consider ways to close that gap.  Lifetime annuities are one way to guarantee your income, just make sure you buy an annuity that includes inflation protection.

NewRetirement Planner

Do it yourself retirement planning: easy, comprehensive, reliable

Disclaimer: The content, calculators, and tools on are for informational and educational purposes only and should not be construed as professional financial advice. NewRetirement Planner and PlannerPlus are tools that individuals can use on their own behalf to help think through their future plans, but should not be acted upon as a complete financial plan. We strongly recommend that you seek the advice of a financial services professional who has a fiduciary relationship with you before making any type of investment or significant financial decision. NewRetirement strives to keep its information and tools accurate and up to date. The information presented is based on objective analysis, but it may not be the same that you find on a particular financial institution, service provider or specific product’s site. All content, tools, financial products, calculations, estimates, forecasts, comparison shopping products and services are presented without warranty.

Terms of Use: Your use of this site constitutes acceptance of the Terms of Use.