How Does Inflation Affect My Retirement?

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Was the re-opening of the economy scary for you? For many, it was downright terrifying, as around three million people were forced into retirement early due to the Covid pandemic. As inflation continues to impact investors of all ages, we’d like to shed some light on how it affects people in retirement.

Judicious investing is vital during times of high inflation, especially for retirees. This doesn’t mean you should immediately react and alter your asset allocation, or pile into risky alternative investments and commodities. The key to making it through inflationary periods is to stay invested in assets that preserve your purchasing power.

As you near retirement, and if you have already entered your golden years, your investment strategies will need to shift from more risky to modest investments. 


When it comes to retirees and inflation, ARS has you covered. There are some silver linings to explore.


This article will cover:

  • How inflation affects retirement (and what to do about it)
  • Social Security benefits (not keeping up with inflation)
  • Cost of living and retirement (what you need to know)
  • How to enjoy retirement during high inflation (since it can be costly)
  • Limiting contributions to retirement plans (tips from the pros)

Retirees: should they worry?

For retirees without a financial plan that accounts for inflation, they may naturally feel confused and concerned. Of course we don’t want you to worry, which is why we highly recommend laying your financial goals on the table as soon as possible and crafting a plan of action to get you there. It’s time to begin comprehensive retirement planning.

Inflation is the nemesis of retirees who rely on a fixed income to support their lifestyle and ongoing needs, versus a paycheck. They depend on a healthy nest egg and/or Social Security benefits to serve them throughout the remainder of their lifetime. So when prices go up, especially for longer periods of time, this can eat away at their savings quicker.

That is exactly why it pays to have a financial advisor in Bountiful, UT, who can serve as your financial ally, confidant, and accountability partner. It will be their sole responsibility to prepare you financially for any situation and market condition. How lovely to have someone on your side who is looking out for your best interests, always!

Read: Why You Need a Fiduciary Financial Advisor to Manage Your Retirement

How much will your money be worth in the future?

Road leading to the future

Even moderate inflation can have a huge impact on a retiree’s savings. As you may well know, the Federal Reserve tries to maintain the inflation rate at 2%, but they will allow it to rise above that for some time. 

Let’s hypothetically say that the average annual inflation rate of 3% persisted over the next 20. How will your finances be impacted?

If you figure that you will need $60,000 for your first year in your golden years, 20 years down the road you would need $108,366.67 to equal today’s purchasing power of $60,000. In other words, in 20 years, your initial $60,000 would only be worth $33,220.55 at 3% annual inflation. 

Because you can expect that everyday items such as food, clothing, appliances, services, housing, travel, etc. will continue to rise in cost, you must factor inflation into your retirement plan. Inflation erodes the value of money saved and will do so after you retire. 

So, if you are living off your savings account (with near-zero interest rates) you are vulnerable to high inflation. This is why you must re-evaluate your investment strategy and retirement income plan. Reach out to see if you are protected against inflation for the long term—our team is ready to assist and serve as your guide.

Social Security is not keeping up with inflation

Even though Social Security payments are adjusted for inflation, the accuracy is questionable. This adjustment is done once annually and often lags when inflation jumps. The most recent Social Security cost of living adjustment (COLA) was updated in January, which increased payments by 5.9% for 2022. That might sound helpful, but it’s already losing purchasing power to inflation when CPI is at 8.5% as of April.

We are still looking for the silver lining for inflation to lessen its grip on the economy, but this is little comfort for retirees with nest eggs being stretched thin. To reduce this effect, retirees can either make more or spend less. “Making more” in retirement might mean taking on more investment risk than you should.

Luckily, retirees have the power of tax planning on their side. Although there is no Roth IRA to keep your capital safe from inflation, you can still maneuver assets into a few tax-advantaged accounts to minimize your burden. ARS can help with that!

Cost of living eats away at retirement savings

As explained above, because the value of the dollar decreases over time, your retirement savings will not be what it’s worth today. Research shows that:

  • The average cost of living in Utah is 3.4% less than average.
  • The average monthly homeownership cost for senior citizens in Utah is $413.
  • The population 65+ in Utah is 11.1%.
  • 6.1% of state residents 65+ live in poverty (third lowest in the nation)

A good amount of people appeared to be living comfortably in Utah during retirement as of 2020, but they may have changed since inflation has not let up, yet. 

Enjoying retirement will cost more

Financial planners estimate that retirees require 80% or more of preretirement income to uphold their standard of living. The Bureau of Labor Statistics’ annual survey on consumer spending shows each year (on average) that the retired household spends 25% less than the working household.

Of course before you know how much to save for a rewarding retirement, you need to know how much you will spend

Anchors Away

in retirement. Again, you also need to factor in inflation. There are other major considerations to financial plan for, such as:

  • Health care
  • Travel
  • Moving expenses if relocating 
  • Day-to-day expenses
  • Hobbies and fitness

Of course these answers are as unique as you. A CERTIFIED FINANCIAL PLANNER™ can help you maintain your lifestyle and ensure your funds keep pace with inflation. 

Next Steps

Since inflation poses a threat to the financial security of individuals and couples in retirement, we hope you won’t hesitate to reach out for more information on how we can help. At ARS we specialize in supporting families to prepare for and transition into retirement. 


Ask us about limiting contributions to your retirement plans and get ahead in the right direction.


Learn more about our DREAM experience and call us today. We look forward to getting to know you very soon.

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CERTIFIED FINANCIAL PLANNERS™ at Advanced Retirement Strategies

Working with a CERTIFIED FINANCIAL PLANNER™ is an excellent investment of your time and money. With the high standards for CFP® certification, you’ll know you’re getting the expertise and knowledge of a highly-trained and educated professional who will always act in your best interests and with the loftiest ethical standards. 

Our team of retirement planners and investment advisors in Bountiful, Utah specializes in helping diligent savers with $250,000 or more of investment and retirement assets (not counting your primary residence) prepare for and then transition into retirement. 

If you’re looking for a CFP® to help you live the retirement you have dreamed of, contact us now.

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