Higher inflation returned six years ago this spring. Before that, annual inflation was below 2%. Inflation rose above 9% in June 2022. The good news? For the past three years, inflation has been 3% or so. The bad news? It is higher than that today, 4.2% in May.
One retirement planning risk is keeping up with the increasing cost of living. Many retired Americans have a fixed income that is not adjusted for inflation. In retirement, there is no full-time wage, salary, or other earned income to bolster the monthly budget. Instead, while inflation is increasing, your income and net worth may not be increasing.
First, our recent inflation pressure saw the War with Iran raise the price of oil 20% to 50% or so, depending on the day. The national average price of gas reached $4.50 per gallon. It was $3.10 per gallon during 2025. Second, housing costs still contribute to inflation. Third, the uncertainty of tariffs and our immigration policy also influence inflation.
Inflation can cause people to reduce savings and increase account income withdrawals. Some people will go without. Some will reduce spending on discretionary activities like travel, dining out and entertainment. Some may postpone needed home repairs or improvements.
What budget compromises do you make? What risks increase as a result? Would you reduce your healthcare costs by skipping medications or postponing treatments? Since 2000, healthcare inflation (3.2%) has been higher than all-around inflation (2.6%).
If you are still working, you can work longer–a year or two perhaps—to combat inflation. The goal in retirement is not to run out of money. Working longer allows you to save more and you avoid current withdrawals while your nest egg grows some more. The “work-longer” strategy can boost your probability of success, despite inflation.
If you own your own home, you have probably benefitted from rising home values. If you have a mortgage, your interest rate is probably low. While your home increases in value, you pay off your mortgage with dollars declining in value. This is some protection against inflation.
Some other asset classes can offer some inflation protection. Some stock market exposure tends to keep up with inflation longer term, and investment real estate too. Commodities and precious metals might offer some protection. These strategies come with more investment market risk, though.
In the short run, watch your spending carefully. Reducing your allocation to stocks may help avoid market losses. Look at increasing your guaranteed lifetime income to stretch your resources and reduce the risk of running out of money. There is some good news too. The US economy continues to grow, and the 2027 Social Security COLA could be over 4%.
Disclosure: Dan White is an investment advisory representative and provides advisory services through CoreCap Advisors, LLC. Dan White & Associates, LLC and CoreCap Advisors, LLC are separate and unaffiliated entities. This presentation is for informational purposes only and is not intended as investment, tax, or insurance advice.
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