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Could Inflation Affect Your Retirement Plans? Thumbnail

Could Inflation Affect Your Retirement Plans?

Laurence Hale, AAMS®, CRPS®
Principal/Managing Partner, Investment Advisor & Chief Investment Officer

As inflation continues to cause the cost of goods to rise, the value and buying power of many retirement accounts are diminished, at least temporarily. For some retirees, maintaining the savings and lifestyle they’d planned on is becoming a challenge. But there are things you can do to adjust for inflation and help protect the value of your retirement funds.

Here’s what you should be aware of, and how you can prepare.

First, understand how yearly inflation is calculated.

Inflation is calculated using the Consumer Price Index (CPI), which calculates inflation across major categories before determining a yearly inflation rate expressed as a percentage.1 On average, the U.S. experiences an inflation rate of roughly three percent.2

This percentage and the percentage expressed by the CPI are helpful for understanding inflation across multiple markets. But these values should also be understood as a general approach, meaning the real impact of inflation will depend on the individual. For example, we might assume that a retiree might need to withdraw an additional three percent from their savings each year in order to adjust for inflation. But this isn’t the whole picture.

Next, consider your individual costs.  

Inflation affects each of us differently. For example, the rising cost of gasoline would affect someone that drives long distances more than someone without a vehicle. Retirement acts in a similar fashion, as it creates a lifestyle change that causes inflation to affect retirees differently.

One of the better ways to measure this difference is through the Consumer Price Index for the Elderly (CPI-E), which shows inflation rates for households with individuals age 62 and above.3 However, this is still a generalization of a specific population. The best way to determine the cost of inflation to you specifically is to examine your personal lifestyle and make adjustments.

Once you know how inflation is affecting you personally, consider these three ways (and others) to manage the impact of those effects.

Social Security:

The Social Security Administration provides the Cost-of-Living-Adjustment (COLA) to offset some of the effects of inflation by raising Social Security benefits.4 This can be an important source of income during retirement. However, the COLA is also based on the CPI-W, meaning some individuals may not be able to rely on adjustments from Social Security to make up for all cost increases.4

Investments that adjust with inflation:

Certain investments can adjust with inflation. However, any investment comes with risk, something that should always be considered during retirement. Be sure to consult with your financial advisor before making any investment decisions.

A change in lifestyle:

Consider your retirement goals and overall lifestyle. Is there something you can trim back on to save on the cost of inflation? This does not mean you need to give up on retirement goals. Rather, what can be adjusted to help you achieve them while maintaining your savings?

This is by no means a comprehensive list of ways to protect your retirement savings against inflation, but they are some of the major options available. Consult with a financial advisor for a better understanding of how inflation will affect you personally, and what you can do to help protect your retirement savings. 

Our team at Weiss, Hale & Zahansky Strategic Wealth Advisors can help you to build a solid financial plan to help ensure your retirement goals stay intact even amid rising inflation and volatile markets. Our strategic Plan Well, Invest Well, Live Well process was built on extensive research and a consistent partnership approach, so you can stress less and enjoy retirement more.

Contact us now to get started.


Presented by Principal/Managing Partner Laurence Hale, AAMA, CRPS®. Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. 697 Pomfret Street, Pomfret Center, CT 06259, 860.928.2341. http://www.whzwealth.com These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your financial advisor. Weiss, Hale & Zahansky Strategic Wealth Advisors does not provide tax or legal advice, and nothing in the accompanying pages should be construed as specific tax or legal advice.

1 https://www.bls.gov/cpi/

2 https://inflationdata.com/Inflation/Inflation/DecadeInflation.asp

3 https://www.bls.gov/cpi/research-series/r-cpi-e-home.htm

4 https://www.ssa.gov/cola/