BLOG: Combating Inflationary Threats in Retirement

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Today, it’s common for Americans to spend two, three, or even four decades in retirement. This means there is plenty of time for people to relax and make a dream list come true. However, the flip side is that retirees need to make sure they have enough savings to last their entire lives. A complicating factor is that inflation is a fact of life and can lead to significantly higher expenses over time.

As you’ve probably seen in recent headlines, inflation rates are the highest they’ve been in many years. The cost of living rose 5% in the past 12 months ending in June, according to the Consumer Price Index 1 – significantly higher than the annual increases of 1 to 2% to which we have become accustomed over the last decade.

Inflation creates challenges for all consumers, but it can be particularly difficult for those who are retired and live on limited income. Higher inflation can skew the regular spending assumptions reflected in your retirement plan. It is not known if this rise in the cost of living will persist, but you still need to prepare for the impacts of inflation. Here are a few things to know and do:

Keep it in perspective

The current inflation rate of 5% is high by recent standards, but far from a record. We may be a long way from seeing a long period of high inflation like the one we experienced in the 1970s and 1980s, when inflation in the United States peaked at 13.5%. Since 1982, inflation has only exceeded 5% in a calendar year (1991) until now.2 While another decade-long inflation threat is unlikely, the short-term cost of living could continue to rise at a rapid rate.

Review your spending

If the cost of essentials, such as food, gas, as well as the cost of discretionary spending, such as travel, is blowing your budget, you may need to look for ways to cut back. Can you buy food in bulk to save money? Should you reduce your occasional driving to reduce your gas mileage? Are there any other discretionary expenses that you can forgo, at least for now? Answering these questions today could keep you from spending your assets too quickly.

Adjust your investments

Is your portfolio well positioned to keep pace with inflation? It may be wise to keep some of your assets invested in stocks. Over the past 30 years, the Standard & Poor’s 500 Index, a benchmark for the performance of US large-cap stock markets, has gained on average more than 10% per year.3, well above the average annual inflation rate of 2.3% over the same period.4 Earning higher returns on the money you might need in 10 to 20 years should help it grow enough to meet the inflated income needs at that time, but a large chunk of your portfolio should still be invested. more cautiously to protect it from market volatility.

Look at other options to improve your position

If you are struggling financially as the cost of living increases, you may want to consider other options, such as a part-time job or consulting. Even in retirement, it’s important to be flexible to react to changing circumstances that can affect even your best-laid plans. Be sure to check with your financial advisor to discuss your best options for managing today’s inflation risks.

1Source: US Bureau of Labor Statistics, “Consumer Price Index Summary,” July 13, 2021.

2Source: Federal Reserve Bank of Minneapolis, “Consumer Price Index, 1913-“,

3Based on Standard & Poor’s total return data.

4Based on the Consumer Price Index, Bureau of Labor Statistics, June 1991 to June 2021.


Nicolas Allen, CFP® is a Private Wealth Advisor with Ameriprise Financial Services, Inc. in Fresno, California. He specializes in fee-based financial planning and asset management strategies and has practiced for 13 years. To contact him, think of http://www.ameripriseadvisors.com/nicolas.j.allen, (559) 490-7030 option 2, or 7433 N. First Street, Suite 102 Fresno, CA 93720.

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