inflation and retirement

How to Account for Inflation in Retirement Planning

Every day I venture out in the street to make standard purchases, I realize how much purchasing power I’ve lost over time. My main focus in my forties has been to make sure my retirement savings accounts for the rising inflation that has eaten up my spending power.

When I look into how much I really need to save for retirement, I see first hand that it’s important to know how to account for inflation in retirement planning. Today I’ll shed light on the rising costs of living and how we you can adjust your retirement plan to keep your purchasing power intact as inflation rises.

Note, this is not legal or tax advice, I simply provide retirement planning strategies. I like to focus on how to adjust for higher inflation and keep buying power in mind.

What is Inflation?

As time passes, prices go up, and this is called inflation. Due to inflation, the amount you spend on every day needs will change every year, even if you continue to purchase the same items. When costs rise, you aren’t able to buy as much as you could in the past.

The cause of inflation can be attributed to changes in supply, demand, and cost:

  • When one item is in high demand, prices will go up.
  • When an item has a limited supply and the demand is still consistent, the price will be driven up.
  • When every day costs of running a business rise, (such as ingredients, materials, or wages) these costs are passed on to consumers.

I also created this guide on how to protect your wealth against inflation.

How Inflation Limits Your Purchasing power

You will hear terms like “the dollar isn’t going as far,” that is a direct reference to inflation and the purchasing power of money.

For example, the dollar bought a lot more goods twenty years ago than it does today, so therefore it had more purchasing power. If it cost you say $100 to stock up on food for the week a few years ago, today that number will be much higher.

You’ll hear the inflation numbers stated as an annual rate. From the years 2001 and 2021, the annual inflation rates were in the ranges of 0.3% and 3.4%, which when extrapolated for an annual number, comes out at about 1.9% yearly. While that isn’t an alarming number, over 20 years that number helped your trip to the grocery story increase by more than 43%.

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How Inflation Affects Retirement Savings

Back to my main focus: retirement inflation.

When you put thought into how much you need saved for retirement, you need to make sure you think long and hard about inflation. You probably have a good grasp on what you spend now, so you should take that budget and account for inflation to maintain real purchasing power. While you may have a retirement strategy that produces guaranteed income, you may not be able to live off that income the way you originally planned.

A great way to look at your spending habits is to put them in two categories: essential and non-essential.

Essential items are one’s you need to live. Food, transportation, electricity, and a place to call home.

Non-essential items are items you can live without, such as eating out, spending money on designer clothes, or even travel.

Thanks to inflation, your expenses will be higher across the board, so you can expect both categories to suffer as inflation rises. Keep that in mind when you do your retirement planning, and create an asset allocation that is built to get past turbulent times.

I’ve written many times about investing in gold for retirement as a hedge against inflation, and urge you to read that piece as it’s very eye opening.

Budget for Inflation Today and in the Future

While nobody knows what the federal reserve will do with interest rates, we do know first hand that inflation risk is very real. The last few years have shown us that the inflation rate has gone so out of control that the federal reserve has raised interest rates to the point that home sales have slowed down and we’ve seen a declining market in both equities and real estate. There are inflation worries everywhere, so plan ahead.

What do I mean by planning ahead for inflation?

You need to take a long, hard look at your real portfolio growth potential. Are you all-in on equities, mutual funds, and similar asset classes? Do you have enough fixed income securities? Are you able to keep the cost of living in check to adhere to the market risk the aforementioned investment vehicles provide?

For me, I invested some of my retirement savings in precious metals. Gold, and silver, both, for full disclosure. You can see the company I used and find out the entire process on this page.

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Precious metals helped balance my retirement portfolio, which was heavily invested in equity investments. In down markets, the growth potential of precious metals works conversely against the rest of the markets, and having an investment allocation of 5-20% in other asset classes, like precious metals, makes me sleep better at night.

If you are seeking real growth from a portion of your portfolio when all other investment strategies seem to be inflation sensitive investments, consider precious metals.

Again, I am not a financial advisor and this is not legal advice, but any research into the subject will show you real, hard facts about why so many people are taking advantage of this strategy while declining markets are having investors watch their retirement plans dry up and the cost of goods and services only rise.

To me, it’s an obvious move. Contact Goldco today to get a personalized investment plan leveraging precious metals in your investment strategy and protect yourself from market turbulence.

Arthur Karter


Hi, I’m Arthur, and nobody wants to wake up in their 50s like me that they are in serious debt with minimal assets. This wake-up call forced me to reevaluate everything. After going through the school of Hard Knocks, I’m ready to help you by sharing the best retirement choices and how they differ from all the same-old, same-old options that financial advisors sell. These alternatives will help you build and protect your wealth.

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