Could Inflation Affect Your Retirement Plans?

It’s often dubbed the "silent thief" of retirement savings. 

Its gradual yet persistent rise in the cost of goods and services can erode the purchasing power of your savings, making it more challenging to maintain your standard of living over the years. Retirees living on fixed incomes or drawing from investment portfolios can feel the impact of inflation.

In recent years, the inflation rate in the United States has seen notable fluctuations. After peaking at over 9% in mid-2022, inflation moderated to 2.9% by December 2024 and further decreased to 2.3% in April 2025.¹ While this decline offers some relief, the long-term impact of inflation on retirement planning remains a critical consideration.

If you are planning for retirement or are already retired, it’s time to understand how inflation affects your nest egg and explore strategies to protect your wealth.

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How Is Yearly Inflation Calculated?

Inflation is measured primarily through the Consumer Price Index (CPI), which tracks the average change over time in the prices paid by urban consumers for a basket of goods and services.² The CPI includes categories such as food, energy, housing, and medical care.

The U.S. typically experiences an average inflation rate of about 3% per year, but this average has been disrupted in recent years. For instance, the CPI recorded an inflation rate of 2.9% in December 2024 and 2.3% in April 2025, indicating a moderation from previous highs.³ This fluctuation means that a retirement portfolio planned around a 3% inflation assumption may need adjustments to maintain purchasing power.

Additionally, while the CPI is a helpful benchmark, it may not fully capture the inflation experience for retirees. For those aged 62 and older, the Consumer Price Index for the Elderly (CPI-E) can provide a more accurate look. The CPI-E reflects the spending patterns of older Americans, particularly higher expenditures on healthcare, which tend to rise faster than other categories. For example, healthcare inflation averaged around 5-6% annually over the past decade, significantly outpacing general inflation.

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Considering Individual Costs

Inflation does not affect everyone equally. For retirees, its impact is largely shaped by individual lifestyle choices and healthcare needs. For example:

• Healthcare Costs: Medical expenses historically rise faster than the general inflation rate. As you age, medical costs can represent a larger portion of your budget, magnifying the effects of inflation.
  
  
• Housing Costs: For retirees who have paid off their mortgage, housing costs may be less of a burden. However, property taxes, maintenance, and utilities continue to rise, reflecting inflationary trends.
  
  
• Transportation and Food: For those who drive frequently or maintain multiple vehicles, rising fuel prices can also take a larger bite out of fixed incomes.
  
  

Because inflation influences different sectors uniquely, it’s important to understand where your retirement dollars are most exposed. This understanding allows you to plan more effectively for long-term cost increases.

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Managing the Effects of Inflation

To maintain your financial security in retirement, it’s important to implement strategies that can help hedge against inflation. Here are some approaches to consider:

1. Social Security and Cost-of-Living Adjustments (COLA)

The Social Security Administration adjusts benefits annually through Cost-of-Living Adjustments (COLA) to help offset inflation. For 2025, the COLA is 2.5%, resulting in an average monthly benefit increase of about $50.⁴ This adjustment is based on the CPI-W (Consumer Price Index for Urban Wage Earners and Clerical Workers), which may not perfectly align with retiree expenses, especially in categories like healthcare.

While helpful, COLA adjustments often fall short of covering the real inflation retirees face, particularly in medical costs. Therefore, it’s crucial not to rely solely on Social Security to keep pace with inflation.

2. Investments That Hedge Against Inflation

Inflation-hedged investments can help protect your portfolio’s purchasing power. It’s important to balance any investment with your risk tolerance and long-term goals. A diversified portfolio that includes inflation-sensitive assets can help cushion the impact of rising costs.

3. Adjusting Your Lifestyle and Budget

If inflation begins to outpace your income or savings, it may be necessary to make lifestyle adjustments. This doesn’t mean you’ll have to sacrifice your retirement dreams. But here are a few strategies that can help you manage costs to stretch your savings:

• Downsizing: Moving to a smaller home or a state with a lower cost of living can significantly reduce expenses.
  
  
• Healthcare Planning: Reviewing Medicare options and considering supplemental insurance can help manage rising medical costs.
  
  
• Flexible Spending: Prioritizing needs over wants and adjusting discretionary spending as inflation rises.
  
  

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Planning Ahead

Inflation is a powerful force that can erode the value of your retirement savings over time. But you can preserve your purchasing power by understanding how inflation is calculated, monitoring its specific impact on your lifestyle, and implementing protective strategies.

This is by no means a comprehensive list of ways to protect your retirement savings against inflation. Rather, it is intended to demonstrate some of the options available to you. At Wealthquest, we believe in proactive planning. Our team of financial advisors works with hundreds of families across the nation to help assess their retirement strategy, identify inflation risks, and adjust their investment portfolios to help safeguard their financial future.

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