What Is Inflation?

Inflation is the increase in the prices of goods and services year over year. It’s a natural part of a growing economy and should be expected over time. As inflation rises, employers often increase salaries, helping working individuals offset the rising costs. However, the situation is quite different for retirees.

The Impact on Retirees

Retired individuals typically rely on a fixed income. Unlike workers who may receive pay raises, retirees may find that inflation reduces the purchasing power of their savings. Over time, this can make it difficult to maintain the same standard of living throughout retirement.

Reducing Inflation Risk in Retirement

Fortunately, there are steps you can take to help reduce the impact of inflation—both before and during retirement.

Before Retirement: Plan, Budget, and Invest Wisely

1. Plan and Budget with Inflation in Mind
Start by estimating your future monthly expenses in retirement while factoring in inflation. Compare this to your projected income. If inflation pushes your expenses higher than expected, you may need to save more, cut current expenses, or both.

2. Invest Aggressively Early On
When you’re younger, your retirement investments should generally be more aggressive to help outpace inflation. Being too conservative early may cause your savings to grow too slowly. As you get closer to retirement, gradually shift to a more conservative investment approach. This shift is known as the retirement glide path—a strategy that balances risk and protection over time.

During Retirement: Monitor, Adjust, and Protect

1. Control Your Spending
Your income may remain fixed in retirement, with only small cost-of-living increases from Social Security. Since most of your income will come from savings, it’s important to adjust your spending as needed—especially during periods of higher inflation. If necessary, cut back on expenses temporarily and reset your budget once conditions improve.

2. Adjust Your Investments
Continue to manage your investment strategy throughout retirement. While your portfolio becomes more conservative along the glide path, you can still consider investment options that help protect against inflation. For example, during high inflation, the Federal Reserve may raise interest rates, making certain bonds or stable value options more attractive.

3. Seek Financial Guidance
Before making changes, talk with a financial advisor. They can help you explore income-producing or inflation-resistant investments suited to your retirement goals and risk tolerance.

Why It Matters

Inflation risk is a real threat to retirement security. By planning ahead, adjusting your investments, and staying flexible with your budget, you can reduce its impact on your savings and income—and maintain a more stable retirement lifestyle.