Retirement: Inflation and Purchasing Power Risks

Inflation may no longer be making front-page news, but its aftershocks continue to ripple through retirement budgets across America. Even with a decline from pandemic-era peaks, everyday prices for essentials – such as food, housing, and healthcare – remain stubbornly elevated. According to recent U.S. Retirement Survey by Schroders, 92% of retirees express concern about shrinking asset values and the diminishing purchasing power of their fixed incomes.

The Lingering Effects of Inflation
Although inflation has cooled from the alarming levels of 2022–2023, the “new normal” in prices is considerably higher than it was just a few years ago. Retirees on fixed incomes are hit particularly hard. A dollar saved in 2019 simply doesn’t buy the same basket of goods in 2025. Medicare premiums, insurance costs, and long-term care expenses have all outpaced Social Security COLA increases in real terms, creating what economists call “stealth inflation.”

Protecting Purchasing Power
Here are some strategies to help maintain your standard of living:

• Reassess Withdrawal Strategies: Instead of a flat 4% rule, consider dynamic withdrawal strategies that adapt to market conditions and inflationary pressure. This may help preserve assets while allowing for periodic income increases.
• Inflation-Protected Investments: TIPS (Treasury Inflation-Protected Securities), real assets like commodities and real estate investment trusts (REITs), and dividend-growth stocks can offer a buffer against inflation.
• Annuities with COLA Adjustments: For those seeking guaranteed income, annuities with built-in inflation adjustments offer peace of mind, though they come with trade-offs that need careful consideration.
• Budget Realignment: Revisit discretionary spending and focus on essential categories. Working with a financial advisor can help uncover hidden cost savings and optimize cash flow.

Emotional Resilience and Financial Discipline

Inflation can induce anxiety and lead to rash financial decisions. Retirees need both a practical plan and emotional resilience. A comprehensive financial review can help clarify where you stand, assess portfolio longevity under different inflation scenarios, and identify changes that preserve quality of life.

To learn more, schedule a meeting with one of our financial professionals today.

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