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8 Ways People Who Save for Retirement Can Fight Inflation

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The increasing inflation figures have become a cause of concern among investors across the US and the stock market. The unprecedented inflation rise may gradually subside, but it will likely last for a while. If you are a retiree with a fixed income, you might be worried that it would affect your retirement plans. In a recent poll conducted by Global Atlantic Financial Group, 3 out of 5 investors who’ve reached retirement age believed that it would be more challenging to build a lifelong income stream due to low-interest rates and growing inflation. Below are a few things you must know about the impact rising inflation figures have on your retirement plans.

How inflation affects your retirement

Inflation’s impact on your retirement funds can be scary. Suppose you’ve set aside $1 million for the future and plan to spend $50,000 annually. That $1 million would last 20 years, provided yearly inflation stays at 3% and the rate of return remains at 3%. However, $1 million would run out in 11 years and 9 months if inflation increased to 12 percent annually.

People worry about running out of money while planning for their retirement, even when sailing. The possibility of price increases merely intensifies the already existing worries. No matter how good your retirement plan is, inflation is one unpredictable factor that can disrupt your retirement plans. You can call inflation the enemy of fixed income.

How to safeguard your money

Inflation figures have risen to their highest levels in 40 years. As an investor, you might be wondering how you’ll be able to protect your retirement funds. You’ll find no perfect solution that can take away all your worries in this regard. Also, the solutions that have worked in the past aren’t likely to work now. It’s pretty standard that you’d be worried about your retirement as the prices of day-to-day necessities continue to soar. But, the one condition that doesn’t change is that the value of your money decreases during the high inflation period.

Below are a couple of things you should keep in mind if you want to protect your retirement funds from being affected by inflation:

1.   Try not to hold too much cash

Everyone keeps a certain amount of money in their checking and savings accounts for their daily necessities. People also tend to save money for large purchases or emergencies. But you shouldn’t use cash for long-term investments during times of inflation. Due to the effects of inflation, your ability to purchase goods with cash would decrease yearly. If you have enough cash, you should consider putting them into long-term investments to keep your purchasing power intact. Ideally, your emergency fund should see you through 3 to 6 months. If you have more than that, you should consider investing in them.

2.   Reassess your portfolio

You must make investments in assets that can support you in preserving your purchasing power over time if you want to resist excessive inflation. Young investors will probably have to stick with a portfolio that puts a lot of emphasis on stocks. Still, alternative investments could help you beat inflation, like commodities and bonds that are inflation-protected.

Investing in stocks

Given enough time, stocks can be effective against inflation. High-level inflation is undesirable for investors and consumers, but stocks have produced positive absolute returns over time. This way, you’ll be able to get wealthier despite the economy getting affected by inflation.

Over the last four decades, the average inflation rate in the US stayed at 3% every year. At the same time, the S&P 500 index’s long-term return is 10%. Short-term, higher inflation rates can cause investors to get nervous, resulting in the stocks getting lower as the market tries to determine how higher prices would affect the economy. However, as businesses look for methods to boost their profits despite rising costs, a broad stock-market index fund will likely be a good investment. When buying individual stocks, you should concentrate on companies that can raise the prices for their goods and services when inflation is high.

Investing in bonds that are protected from inflation 

As you approach retirement age, your portfolio will probably lean more toward fixed-income investments. Keeping some of that fixed-income allocation in inflation-protected bonds may be prudent.

Investing in commodities

The only asset type that typically performs well when inflation increases are commodities. Prices for these items usually rise when demand rises throughout the economy and raises inflation. You may want to consider investing a portion of your portfolio in a broad commodities ETF or one linked to a particular commodity, like natural gas or oil. But because commodity prices might fluctuate, you definitely shouldn’t make these investments a sizable portion of your portfolio.

3.   Think about delaying your social security payments.

Most Americans still rely heavily on Social Security for their retirement income; about half of pensioners depend on it for more than half of their retirement income.

You should consider delaying the beginning of your Social Security payments if you’re close to retirement age and you’re concerned about how inflation might affect your golden years. The payments can be started whenever you are between the ages of 62 and 70, but they get bigger the longer you wait until you turn 70. In addition to maximizing your social security benefits, you should also try to optimize your survivor benefits if you’re married. You should remember that if you choose to delay the start of your Social Security benefit payments, you will need to rely on your savings or carry on earning a living until you begin receiving your benefit check.

4.   You should plan for healthcare costs

Many people overlook to account for healthcare expenses in retirement while making plans for their golden years. However, healthcare prices have historically risen faster than the general inflation rate, and this trend is projected to continue. Your retirement plans may suffer if you don’t make provisions for medical expenses.

Below are a few things you should do to protect your finances from increasing healthcare costs:

  •       Use a Health Savings Account – Many people overlook healthcare expenses in retirement while making plans for their golden years. However, healthcare prices have historically risen faster than the general inflation rate, and this trend is projected to continue. Your retirement plans may suffer if you don’t make provisions for medical expenses.
  •     Consider purchasing insurance for long-term care – costs associated with long-term care can be high, and you may need to seek long-term care when you approach retirement age and have less money saved. You pay premiums for a long-term care insurance policy in exchange for the insurance provider paying long-term care expenses for you temporarily or permanently.
  •       Know your Medicare coverage in detail – A common misconception is that once you turn 65, Medicare will deal with all your medical expenses. Some medicare provisions deal with hospital stays and other parts of Medicare cover prescription drugs. Long-term care and other things like dental, vision, and hearing care are not covered by Medicare. When making retirement plans, know what is and isn’t covered.

5.   Try to reduce your spending and save more money.

Increasing your savings now and reducing your spending once you stop working are two of the best strategies to ensure you won’t run out of money in retirement. The more money you set aside today, your savings will get larger. The money in your savings also accrues interest; thus, you’ll have access to a significant amount when you retire.

If you withdraw smaller amounts, then your savings will last longer. The 4% rule is a well-liked strategy that states if you’re planning a 30-year retirement, you shouldn’t withdraw more than 4% of your retirement account in any given year. Some experts believe that this withdrawal rate isn’t low enough. You’ll have access to more money in retirement, provided you keep your withdrawals as low as possible.

6.   Try to get rid of your debt.

Real estate tax inflation is a significant issue for many investors; they should consider debt load instead. Inflation-driven increases in mortgage, credit card, and even college loan debt among older Americans are on the rise, and inflation will cause this debt to act as an anchor. Any inflation could be a genuine catastrophe if your debt has an adjustable rate, such as a mortgage with no set interest rate. Therefore, If you’re concerned about inflation after retirement, you should put paying off debt at the top of your priority list.

7.  Try to keep earning even after you retire.

The best way to safeguard your capital is if you can manage to keep making money even after you retire. In retirement, every cent you make is a cent you don’t have to take out of your savings. Thus, your human capital is your most robust defense against inflation. It doesn’t mean that you should continue working full time. Instead, you can consider working part-time. Changing jobs is also an option, and you can think about applying to a different field of work altogether.

8.   Try to earn money from real estate.

You’ll find that apart from stocks, one of the best ways to earn money is through real estate. An excellent approach to beat inflation is to buy real estate and rent it out. This is because as inflation increases, property prices also climb, raising the maximum rent you can ask for as a landlord. Managing a property and ensuring that you’re charging the right amount for rent requires a lot of work compared to buying stocks. But, if you want to diversify your income during inflation, this is an excellent way.

How inflation affects your 401(k)

The relationship between 401(k) and inflation is not simple and largely depends on the assets you own. Although inflation increases business revenue, it frequently drives up the expenses of manufacturing, distributing, and marketing goods. The impact on your 401(k) is decided by whether the government acts against inflation and the timing of its actions. Bond values decline with the rise in interest rates, businesses find it more difficult to raise debt, and long-term real estate leases become unattractive. Prices of commodities tend to rise with inflation, and certain government bonds may be linked to inflation rates.

Do 401(K)s outperform inflation?

No automatic inflation adjustments are made to investments in 401(k). The number of returns you receive each year and the change in interest rates determine whether or not your plan can outperform inflation. Generally, the annual inflation rate stays at 2%, while 401(k) returns range from 5% to 8%. Thus, your 401(k) savings can outperform price increases due to inflation. You can improve your investment strategy by keeping track of your 401(k) returns every year and the performance of the various funds within the plan.

What should you do with your 401(k) during inflation?

Some of the best things you can do with your 401(k) when inflation is rising are as follows:

  •       Keep contributing to your 401(k) at the same rate as before the inflation, and you can even increase your contributions if you can.
  •       Try to diversify your investments.
  •       Try to find ways to reduce spending on fees.

Additionally, you can use investments in taxable brokerage accounts or individual retirement accounts (IRAs) to supplement 401(k) funds.


It is natural for you, as an investor, to try to safeguard your money from inflation, especially now, as inflation has reached its highest level in a decade. However, you shouldn’t stray too far from the long-term investment plan you have in place. As businesses find ways to boost profits and counter rising expenses, stocks have proven reliable inflation hedges. Avoid overdoing it when considering adding commodities or bonds with inflation protection to your portfolio. Ensure you’re not taking on too much risk if you’re trying to chase higher rates to fight inflation.


Lyle Solomon

Bankruptcy Expert
Atty. Lyle Solomon has significant expertise in legal research and writing. He is a member of the State Bar of California and has extensive litigation experience. Solomon has helped over 6000 people become debt-free. He has also contributed articles to top-notch websites on debt, credit, consumer laws, bankruptcy, and more. Check out the nationally recognized attorney’s latest book – Think Different! Save More! on Amazon to get 48 tips to save your hard-earned money.

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