We’ve seen increased government spending due to COVID and significant increases in government debt. Some economists theorize that this could lead to increased inflation, and many claim that we are already seeing the effects. Although the official inflation rate may remain low for now, you may notice price increases of everyday items and services. If you’re nearing or in retirement, you need to protect yourself from the eroding effects of inflation, even if it never rises to the level it did during the 1970s. Have you factored inflation into your retirement plan?

How Much Could Inflation Cost You?

When lower-risk investments like CDs and bonds offer near-zero returns, it can make retirement planning more complicated. The Federal Reserve expects to keep the current near-zero rates through 2023.[1] Also, note the potential eroding effects of inflation on your savings. In early 2021 the Federal Reserve acknowledged the potential for ‘transient’ inflation in the near future and said they would allow inflation to rise above 2% for some time.[2] While many economists don’t think we’ll return to the double-digital inflation rates of the ’70s, even low inflation can eat away at savings. For example, after 20 years with a 2% inflation rate (the Fed’s “target” interest rate), $1,000,000 would have the buying power of only $672,971.[3]

Let’s Look at Social Security As an Example

In 2021, Social Security benefits got a 1.3% Cost of Living Adjustment (COLA) increase. This was a relatively low increase and was based on the relatively low inflation rates of 2020. But will benefits actually keep up with inflation? The Senior Citizens League estimates that the average Social Security benefit has lost a third of its buying power since 2000.[4]. This is largely because benefit increases have not kept up with the increasing cost of prescription drugs, food, and housing. Expenses for Social Security beneficiaries have risen twice as fast as the yearly cost-of-living adjustment (COLA) since 2000, despite relatively low inflation rates. And in some years, the COLA adjustment has been as low as 0.3% in 2016 and even 0% in 2015.[5]

What Can You Do? 

The pandemic won’t be the last retirement challenge you’ll face, and the next could be inflation. There are a number of potential strategies aimed at helping to protect your savings against inflation, including a growth-oriented investment strategy, Treasure Inflation Protected Securities (TIPS), real estate investments, and certain annuities. The right strategies depend on the individual, their market risk tolerance, and income needs. There’s no single easy answer to how to beat inflation, but we can help you create a plan to help protect what you’ve earned and create reliable income in retirement. Talk to us during a complimentary financial review to find out more about these strategies and how we can help you create a comprehensive retirement plan.

[1] https://apnews.com/article/fed-expects-key-rates-near-zero-through-2023

[2] https://fortune.com/2020/12/07/investors-inflation-2021-labor-market-mirage/

[3] https://www.buyupside.com/calculators/inflationjan08.htm

[4] https://seniorsleague.org/social-security-benefits-lose-33-of-buying-power/

[5] https://www.ssa.gov/oact/cola/colaseries.html


Investment advisory and financial planning services offered through Advisory Alpha, LLC, a Registered Investment Advisor. Insurance, Consulting, and Education services offered through Gosline Retirement Planning Inc. Gosline Retirement Planning is a separate and unaffiliated entity from Advisory Alpha. While tax and legal issues may be discussed in the general course of financial and investment planning Advisory Alpha does not provide tax or legal advice. Please consult with your tax or legal professional prior to making decisions relative to these issues.

The information presented is hypothetical and for illustrative purposes only and should not be used as the primary basis for an investment decision. Please consult a financial advisor to discuss your individual situation prior to making any investment decision.