Do Not Let Inflation Ruin Your Retirement

By Sean Condon, CFP®

It is understandable if stories about high inflation and a potential recession are causing some anxiety. With prices skyrocketing, many retirees and those planning to retire soon are concerned about the kind of quality of life they can enjoy on a fixed income. With your expenses continually increasing and your income staying the same, it is natural to feel worried.

Do not give up hope! There are still steps you can take to shield your retirement savings from the effects of inflation so you can keep your plan on track. Keep on reading for 4 of those steps.

Why is Inflation a Threat?

Inflation is the general rise in the price of goods and services over time. It is a normal part of a growing economy, but over the past year, it has become a major obstacle for those who are nearing retirement or have already retired.

The 2023 annual inflation rate is far lower than the 6.5 percent jump in prices seen in 2022, according to the Labor Department. Price growth remains above the Fed’s target of 2 percent but is well below the peak of 9.1 percent reached in June 2022, which broke four-decade highs.

As the cost of goods rise, many retirees are left with a fixed amount of income for the rest of their lives. Too much of an increase in cost can quickly price retirees out of the comfortable retirement they worked so hard to build.

What Can You Do to Safeguard Your Savings?

Though inflation has continued to rear its head, thankfully there are steps you can take to minimize the impact.

1.   Reassess Your Budget

The first step in overcoming inflation is to understand its impact on your overall financial plan. The unfortunate fact is that most people have unlimited wants with only limited resources. Inflation exacerbates this issue by making every dollar you earn worth less than it was worth the day before. So, a good way to cope with a high-inflation environment is to reassess your budget and adjust where you can.

For retirees, this might mean cutting back on discretionary expenses such as traveling, recreation, or going out to eat. You could even reassess your living situation and downsize to a smaller home or condo if it makes sense for your overall financial plan.

Reassessing your budget is an especially useful tactic when the market is in a downturn. The more you can avoid withdrawing from your portfolio to pay for everyday expenses, the better off you’ll be in the long run.

If you are aware of upcoming costs that could place strain on your finances, you can plan and make cuts to other areas of spending in order to compensate. Even if you don’t expect your lifestyle to change all that much, looking at your budget and reassessing your spending is never a bad idea.

2.   Diversify Your Income

Retirees often have several sources of income, but they are usually relatively fixed in amount. If your expenses are greater than these income sources, you may be forced to draw from your investment assets. An effective way to avoid, or reduce, portfolio withdrawals is to diversify your income. Not only could this improve your portfolio longevity and provide you with more flexibility in retirement, but it can also help minimize the impact of inflation.

Diversified income streams act in much the same way that diversified investments do. They allow for less demand on any single income source so you have the flexibility to handle increased costs or unforeseen events without depleting your portfolio reserves. There are many ways to diversify your income, including:

  • Use dividend-paying stocks. Often considered an annuity-like cash stream but without the fees, dividend-paying stocks give company earnings to investors, typically once a quarter. The top dividend-paying stocks even raise their payouts over time. This not only gives you an income stream, but you can also reinvest the dividends to pursue more growth.
  • Review your social security benefits. If you are eligible for social security benefits and have not yet applied, now may be a suitable time to review if the benefits could offset increased retirement costs. One upside of inflation is that social security benefits also increased by an average of almost 9%; while that increase will factor into future benefits even if you continue to delay, perhaps the higher benefit available now makes sense with your long term plan.
  • Invest in real estate. Owning rental properties is a great way to earn passive income without dipping into your retirement savings. Real Estate Investment Trusts (REITs) are another popular option.
  • Continue to earn active income. You could also pursue a passion, become a freelancer, or work for a nonprofit. You might earn less than what you’re making now, but these options may provide flexibility and a form of income diversification that could keep your retirement savings safe from inflation.

3.   Consider Alternative Investments

Alternative investments are another option in the fight against inflation. Most have low correlation with standard asset classes, which can smooth portfolio volatility. Hard assets, like gold and commodities, may have an inverse relationship with stocks and bonds during periods of higher inflation. Because of these differences in behavior, including them in your portfolio may provide broader diversification, reduce risk, and increase returns.  Many commodity-producing companies also have the added benefit of paying dividends if their profits are high during an inflationary period.

4.   Put Idle Cash to Work

You may think that the best way to ride out the uncertainty storm is to stockpile loads of cash in the bank. While this does keep it safe from volatility, it does nothing to protect you from inflation. Each day your funds sit idle, inflation could eat away at your purchasing power. This issue can be minimized by making sure even your reserve funds are earning a competitive interest rate.

For instance, high-yield savings accounts and money market funds are currently paying upwards of 6% interest.  The national average APY on savings accounts is just 0.47%. That’s over 10 times less than the 5-plus percent APY and around 6% APY that the highest-yield savings accounts offer.  While this is still below the 6.5% inflation rate, it is much better than the 0% interest you would earn from most checking accounts or savings accounts offered by larger institutions.

There are other options that can improve your interest rate while keeping your funds relatively safe, including money market accounts, certificates of deposit, and short-term Treasury bills. No matter which option you choose, managing your excess cash with inflation in mind is one of the easiest ways to improve your portfolio longevity and safeguard your retirement.

Do not Let Inflation Ruin Your Dreams

If you find yourself worried about how to safeguard your retirement plan during these uncertain times, let Windgate Wealth Management provide a tailored plan to help you mitigate the effects of inflation and have confidence in your financial future. Schedule a free, no-commitment phone call with us today and start planning for a better tomorrow. You can reach us by calling (844) 377-4963 or emailing You can also book an appointment online here.

Perritt Capital Management, Inc. is the Registered Investment Advisor for Windgate Wealth Management accounts and does not provide tax advice. Consult your professional tax advisor for questions concerning your personal tax or financial situation and your insurance agent for insurance advice.

Data here is obtained from what are considered reliable sources. We consider the data used to be relevant and reliable.

First published March 2023.  Updated March 2024.

Past Performance does not guarantee future results.

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