Ways to Help Protect Your Retirement Against Inflation with a Plan Built to Last

Rising prices and fixed incomes are two things that don’t go well together. If you’re worried about inflation, here are some long-term options to consider.

A person crosses out notes that read Plan A and Plan B in favor of Plan C.
(Image credit: Getty Images)

If you're getting tired of paying more for food, gas, clothes and rent — and just about everything else these days — you aren’t alone. Inflation has been upending household budgets for months now, and its momentum doesn’t seem to be slowing.

Retirees on fixed incomes will most likely feel the pinch on their pocketbooks for at least the next few months. If you haven’t already, now is the time to review your budget, your income plan and your portfolio with an eye toward protecting your purchasing power.

As we move through the first months of 2022, here are some specific planning points to keep in mind:

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Do You Have a Backup Plan for Your Income Plan?

This year’s historic 5.9% Social Security cost-of-living adjustment (COLA) will help retirees with rising prices — but probably not as much as many hoped. That’s because Medicare's Part B monthly premiums also saw a bigger hike this year. Standard monthly premiums for Part B now cost $170.10 (opens in new tab) — up 14.5% from $148.50 in 2021.

Most Social Security recipients whose Part B premiums are typically deducted from their Social Security benefits still will see a net increase in their monthly checks. But it likely won’t be enough to completely offset increasing costs if inflation sticks around for a while. And some private pensions don’t offer automatic COLAs (opens in new tab). You may find it’s necessary to modify your budget or to look to another income source (such as a temporary job, home equity loan, etc.) to make up the difference.

Is Your Investment Plan Designed to Keep Up with Rising Costs?

Let’s face it, inflation isn’t a new or unexpected risk for retirees. Even relatively low rates of inflation can have a harmful effect on your purchasing power over time.

It’s vital, therefore, to develop an investment plan that can help you keep pace, whether costs are soaring, as they have been recently, or quietly creeping up over time.

Inflation-hedging strategies should be a well-thought-out, long-term component of your retirement portfolio, and your financial adviser can help you pick the best products based on your needs.

It might mean looking at the pros and cons of investing in commodities or real estate, both of which tend to rise in value during periods of inflation. Or it could mean purchasing U.S. Treasury Inflation-Protected Securities (or TIPS), which offer the safety of government-backed bonds but with interest payments that are designed to rise with inflation.

Your adviser will likely recommend leaving a portion of your portfolio invested in stocks to keep your money growing for a long retirement. Stocks are unpredictable, of course, but historically the market has provided patient investors with returns that beat inflation.

Are You Reacting to Media Hype, or Your Reality?

One of the most important things to keep in mind moving forward is that this is not a time to panic.

Economists aren’t expecting the double-digit inflation rates (opens in new tab) the country experienced in the 1970s and 1980s.

It’s also important to note that some of the categories hit hardest by current inflationary pressures aren’t a factor for many seniors. If, for example, you own your home (as most Americans over 65 do (opens in new tab)), you don’t have to contend with today’s rising rental costs. And if you’re in the later years of your retirement, it’s likely your day-to-day living expenses already have or could be reduced. (You’re probably driving less, traveling less, can manage with a smaller wardrobe, and may find it easier to cut your grocery bills than a younger family might.)

Don’t let hyped-up headlines push you into making knee-jerk moves that aren’t necessary or could even hurt your long-range plans.

Yes, if you sit back and do nothing, inflation can eat away at your savings and impact your retirement lifestyle. But by reducing your spending when possible, finding a sensible solution for filling any potential income gap, and building inflation-hedging strategies into your investment plan, you should be able to soften the blow.

Kim Franke-Folstad contributed to this article.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Chad Ensign, Investment Adviser Representative
Founder, Ensign Wealth Management

Chad Ensign is an Investment Adviser Representative and founder of Ensign Wealth Management (opens in new tab). As a Retirement Income Certified Professional (RICP), he focuses on helping clients through well-thought-out income strategies. He founded his independent company to better serve clients by providing a wide range of products.