Here’s a question I’ve been asking a lot lately:
Does your retirement plan actually account for inflation or does it just assume everything stays the same?
A lifestyle that costs $5,000 a month today could cost nearly $6,700 a month 10 years from now at just 3% annual inflation. That is not a worst-case scenario but a pretty normal one.
In retirement you can’t just ask for a raise to keep up. Your expenses keep climbing, but for many retirees, their income stays flat. Over time, that gap adds up to real money leaving your savings faster than you planned.
I put together a short video walking through four strategies to handle inflation in retirement. I won’t give everything away here, but one of the strategies tends to catch people off guard—especially people who have been told to play it safe with their money in retirement.👉 If you have questions about your retirement, book your free 15-minute consultation to get a personalized look at your retirement strategy.
Transcript
How Inflation Can Sink Retirement Plans
Imagine you’ve saved $1 million for retirement. You’ve worked your entire career for that number, but by the time you’re 75, inflation has turned that $1 million into a purchasing power of just 600,000. You didn’t lose a single dollar in the market.
You didn’t make any bad decisions, but you’re still losing ground every single year. That’s inflation, and it may be the single biggest threat to a comfortable retirement that a lot of people are not preparing for. Hi, I’m Joe Dowdall, a CERTIFIED FINANCIAL PLANNER® advisor in Dallas, Texas.
Why Inflation Matters More After You Retire
I work with people who are nearing or already in retirement, and inflation comes up in nearly every conversation I have. When you’re still working, a raise can help offset those rising costs. But once you retire, that option goes away for most people.
Your expenses, like groceries, healthcare, and utilities) keep climbing, but your income stays the same. Let’s say your monthly expenses are $5,000. At just 3% annual inflation, that $5,000 turns to $6,700 10 years later.
That’s an extra $1,700 every month coming out of your savings. If your income isn’t growing with those costs, you’re spending down your savings faster than you had planned, and that’s when people run out of money earlier than they expected. So let’s talk about strategies to help you combat inflation.
Strategy 1: Plan for Inflation Before Retirement
The first strategy to combat inflation sounds simple, but it’s often skipped. You need to plan for inflation before you retire with real numbers. What I mean by that is your retirement plan should include real projections.
What do you expect to spend? How will those expenses grow over time? And what income will you have? And does any of that adjust for inflation automatically? Social Security, for example, does include a cost-of-living adjustment, but corporate pensions and fixed annuities typically do not. Knowing which parts of your income keep up with inflation and which parts don’t is a critical piece of the planning process. The second thing to focus on is how your retirement income is structured and whether it gives you room to adapt.
Strategy 2: Build Flexibility Into Your Retirement Income
I find that people that handle inflation best in retirement have one thing in common, and that’s flexibility. They’re not relying on a single fixed income source. They may have a mix, things like Social Security, retirement accounts, maybe some investment income, and they have a plan for which accounts to pull from and when.
That flexibility is important because it gives you options. If inflation spikes in a given year, you’re not forced to sell investments at the wrong time just to cover your bills. The third strategy is staying invested in growth, and it matters more in retirement than many people expect.
Strategy 3: Stay Invested for Long-Term Growth
Stocks have historically been a reliable long-term hedge against inflation. I know that may sound counterintuitive when you’re in retirement. The instinct might be to move everything to something safe, but if safe means no growth, your purchasing power is eroding every year.
The goal is to balance enough stability with growth to stay ahead of rising costs. The right mix depends on your timeline, income needs, and comfort with market swings. That’s where a comprehensive retirement plan can make a big difference.
Strategy 4: Stress-Test Your Retirement Plan for Inflation
The fourth strategy is something that I do for every client, and I think it’s one of the most valuable parts of the planning process, stress-testing their retirement plan. We ask, what happens if inflation runs higher in the future? Or what if markets return less than they have historically? What if you live to be 100 years old? What if their Social Security is reduced down the road? If your plan can survive all of that and you’re still okay, that’s a plan you can have confidence in. If it can’t, that’s something we want to know today, not down the road.
Find Out How Rising Costs Could Affect Your Retirement Plan
A lot of retirement plans look good on paper until inflation shows up. If you’re wondering if your plan can survive against rising costs, reach out. We can have a free, no-obligation, 15-minute phone call to see if I can help.
You can reach me at 469-423-1989 or by email at joe@worthassetmgmt.com.