Does Your Retirement Plan Account for Inflation?

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By Bennett Whitlock, CRPC, ® Private Wealth Advisor

Today it’s common for Americans to spend two, three or even four decades in retirement. This means people have ample time to relax and achieve a bucket list of dreams. However, the flip side is that retirees need to ensure they have enough savings to last through their lifetime. One complicating factor is that
inflation is a fact of life, and it can result in meaningfully higher expenses over time.

Living Costs Increase Even With Modest Inflation

The impact of inflation on Americans’ expenses has been relatively low, rising less than 3% annually over the last quarter century. Yet, even modest inflation adds up. A 3% annual increase means living costs would double in less than 25 years. Consider this example: A retired couple planning to live on $60,000 in 1994 would require $103,842 today to maintain their standard of living.

Some Costs Can Grow More Quickly

While you should plan for inflation to affect all your retirement expenses, you can expect some costs to make a bigger impact:

  • Health care – As you grow older, it’s likely that you will require more medical attention. Health care costs are rising, which is affecting both out-of-pocket expenses and insurance premiums, including Medicare and long-term care policies.
  • Housing costs – By the time you’ve reached retirement, you may have paid off your mortgage. But other expenses like insurance and property taxes can sometimes rise significantly, putting more stress on your retirement budget.
  • Miscellaneous expenses – In retirement, day-to-day expenses such a groceries, gas and utility bills, as well as travel and entertainment costs, will increase. All of these can add up quickly.

There are steps you can take today to help prepare for the impact of inflation.

If You Still Have Time Left Before You Retire:

  1. Increase your retirement plan contributions annually – Since living costs will rise throughout your retirement, consider boosting your retirement savings each year. If you can, maximize your contributions, or at least save enough to match the rate of inflation.
  2. Own a tax-diversified retirement portfolio – Along with your tax-deferred workplace retirement plan or IRA, focus on building savings in other vehicles. This includes Roth IRAs and Roth 401(k)s (if available) that can potentially generate tax-free income in retirement. Any income you can generate that is tax-free will reduce your total withdrawal amount since no taxes are due.
  3. Keep working – This is not the answer everybody wants to hear but staying at your job for a little longer than originally planned can help boost your nest egg and reduce the amount of time you need to live off your savings.

If You Are Retired:

  1. Invest to keep up with inflation – While it’s important to take some risk off the table in retirement and move to more conservative investments, it is possible to be too conservative. At a minimum, make sure your investments are returning enough to keep pace with inflation.
  2. Understand your income streams – Knowing what sources you have to draw from, such as a workplace retirement plan, IRA, annuities and Social Security can help you make tax-efficient decisions that preserve your savings.
  3. Consider working in retirement – Returning to work may not be ideal, but if your savings come up short, working part time or as a consultant can help solidify your financial picture.

Whether you’re preparing for retirement or have already stepped away from your primary career, it’s important to have a solid plan that realistically estimates your financial need for retirement — which means taking inflation into account. If you need help getting started or deciding if you need to adjust your existing plan, consult a financial advisor in your area.

Bennett C. Whitlock III, CRPC®, is a Private Wealth Advisor and Managing Director with Whitlock Wealth Management, a private wealth advisory practice of Ameriprise Financial Services, Inc. Contact him at 703-492-7732 or visit


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