How to Protect Your Purchasing Power in Retirement
Maybe you’re old enough to remember life in early 1986. Back then, you could get a gallon of gas or a dozen eggs for less than a buck!
Unfortunately, prices have a way of creeping up. And while a few cents here and there might not seem like much, over the course of a long retirement, small price increases can gradually erode your purchasing power.
The question isn’t if inflation will affect your retirement – it’s how much, and what you’ll do about it.
Why retirement and inflation matter together
When you’re working, you might get annual raises that help you keep pace with rising prices. But in retirement, many income sources are fixed. Your pension doesn’t automatically increase. Your Social Security gets modest cost-of-living adjustments, but they don’t always keep up with real-world expenses.
Meanwhile, the things you spend money on – groceries, healthcare, utilities – keep getting more expensive, making retirement and inflation planning essential.
If your retirement income doesn’t grow along with inflation, you’ll find yourself able to afford less and less as the years go by. That’s not the retirement you’ve worked for. Understanding inflation helps make sure you get the one you planned.
The long-term impact of retirement and inflation
Let’s say you retire today with $50,000 in annual expenses. If inflation averages just 3% per year, in 20 years you’ll need over $90,000 to maintain the same lifestyle. That’s nearly double – demonstrating the shocking impact of inflation over time.
And that’s why retirement planning is critical.
You need an inflation-resistant retirement plan – one that addresses the relationship between retirement and inflation and helps your income and investments keep pace with rising costs.
Strategies to address inflation
- Keep some growth in your portfolio
Many retirees shift entirely to “safe” investments like bonds and CDs. But if you’re too conservative when addressing retirement and inflation, you risk losing purchasing power. Depending on your situation and risk profile, keeping a portion of your portfolio invested in stocks or other growth assets can help your money grow over time and better handle inflation. - Plan for rising healthcare costs
Healthcare expenses tend to rise faster than general inflation, making them a critical part of any retirement and inflation plan. Planning for healthcare costs in retirement is essential to ensuring you’re not caught off guard by the impact of inflation on medical expenses. - Review your retirement plan regularly
Your retirement strategy shouldn’t be “set it and forget it.” Regular reviews allow you to adjust your plan as inflation, markets, and your personal situation change.
At Meriwether, we help clients build sound retirement plans built on strategies that account for the realities of life. We look beyond today – to where you want to be 10, 20, even 30 years from now.
We do this because we believe your wealth should work for you your entire retirement, not just the early years.
If you’re concerned about inflation eating away at your retirement security, let’s talk about strategies that can protect your purchasing power.
This content is for educational purposes only and should not be considered personalized financial advice. Please consult with a qualified financial professional to discuss your specific situation and needs