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Is Inflation Affecting Your Retirement Planning?

Chase Squires

Why It Matters

  • After years out of sight and mind, inflation is back. There are steps you can take before, and after, retirement.
  • Savings in “safe” havens such as a simple savings account are at risk as inflation quietly steals each dollar’s buying power.
  • Mindful strategies can help retirement savers and investors fight back against inflation.

For the 12-month period ending March 2022, inflation reached a 40-year high, according to the U.S. Bureau of Labor Statistics. The Consumer Price Index for All Urban Consumers (CPI-U) was up 8.5% in that period. The inflation rate is more than what investors and savers earn in traditionally “safe” fixed-income vessels such as savings accounts and bonds.1,2,3,4,5

Should you be concerned about your retirement savings due to inflation? Yes and no. Yes, if you’re approaching retirement soon, it may be time to reassess your strategy with a qualified financial professional. And no, drastic changes aren’t likely needed, particularly for those with a longer time horizon to retirement. It’s time for a cool head and strategic decisions to prevail. 

What is inflation?

Inflation is found when the cost of a basket of widely used goods and services rises. Longtime financial information publisher Investopedia uses the example of a cup of coffee: It cost 25 cents in 1970 and $1.59 in 2019. Same java, same cup, but that same dollar doesn’t buy what it used to.1,6

With rising inflation, the dollar buys less. While the number of dollars savers see on a savings account statement hasn’t gone down, it’s not worth as much. Like a silent thief, inflation chips away the real value of money stashed in “safe” havens.7

Having cash on hand may not seem like a problem. For those nearing or in retirement, that money is there to spend, but it may be losing value. For those still working as they save for retirement, an extended period of high inflation could be a headwind if savings are sitting in a low-interest vessel. Money may need to “work” harder to hold or grow purchasing power for the future.

While the CPI is a widely reported standard for measuring inflation, economists consider several measures of inflation, including the Producer Price Index (PPI) and Personal Consumption Expenditures Price Index (PCE).

Hardships caused by inflation may be experienced differently by different people, and people’s responses to inflation should be based on their personal situation. For example, people with long commutes may experience more hardship when gas prices increase, while others may experience more challenges when medical services increase in price.

What causes inflation?

Inflation can be triggered by several things: governments printing or lending more currency, the availability of necessary commodities, or too much consumer demand for too few available goods (maybe you’ve read about the post-COVID supply chain shock?).6,8

Demand-pull inflation

Demand-pull inflation happens when demand for goods and service increase, while the supply stays the same.

Cost-push inflation

Cost push inflation occurs when the supply of goods or services decreases, while the demand stays the same. For example, damage to a factory may hinder a company’s ability to produce goods.

During Covid, we’ve seen demand-pull and cost-push inflation.

How inflation threatens retirement savings

It’s all about purchasing power. At a low inflation rate of 3%, the cost of a select basket of goods would about double over a 25-year retirement.9 So the money you’ve saved will buy less than it would 25 years ago. And retirement may last longer as longevity increases.10,11 Retirees often put their money in lower-risk investments during retirement, to avoid any losses. However, if the rate of return is not outpacing inflation, the money will lose purchasing power over that period.

While some government pensions offer some cost-of-living increases, many private pensions are not designed to keep up with inflation. While just about 15% of private industry workers have access to a pension, more than 86% of state and local workers still do.12

Planning for retirement when it’s so close you can see it

For workers within a short window to retirement, say five years or less, it can be an exciting time. A lifetime of labor delivers a well-earned reward. Then, inflation starts nipping at those “safe” lower-risk bonds and savings accounts. Even though we’re emerging from a period of relatively low inflation of around 3%, even a low rate merits attention. At 3%, the cost of a select basket of goods would about double over a 25-year retirement.9

Work longer

Working a little longer has benefits, letting investments potentially grow without digging into savings. And it can help delay collecting Social Security, which can increase the monthly benefit for a lifetime. Working longer (it doesn’t have to be the same job or even career) can be mentally stimulating and socially rewarding. And earning more money is one way to tackle inflation.9,10,11

Use liquid assets first

When you sell your investments, you lock in any losses you may have incurred. So you may want to consider using your cash assets before selling any investments, to give your investments as much time to recover as possible. Of course, there is no guarantee that your investments will grow or outpace inflation.

Eye on Social Security

Now may be a suitable time to review potential retirement benefits. You can claim Social Security benefits at 62, but there’s a catch. The longer you delay claiming those benefits, the bigger that monthly check can be (up to age 70). More than 50% of retirees rely on Social Security for half of their retirement income. Remember, Social Security benefits receive an annual cost of living increase based on the CPI, so the benefit can increase as prices rise.11

You aren’t done investing:

Just because you’ve stopped working for money doesn’t mean your money is done working for you. Retire at 65 and you could have another 20 or more years of living to do. And since stocks have historically outpaced inflation in the long run, it may make sense to remain at least somewhat invested in the stock market. No two investors are alike. A financial professional could help you explore strategies that fit you.10,13

Retirement, a more distant goal

Younger workers, savers, and investors several years from retirement may have time to recover from losses or wait out inflation in their employer-sponsored retirement plans or IRAs. A financial professional may help steady the course, take the emotion out of decisions, and help shape an individual strategy. But make no mistake, inflation may be a factor to consider.

Reassess cash holdings

Funds kept in savings accounts or money markets are especially susceptible to high inflation, as their interest rates may be lower than the inflation rate. To avoid losing buying power as inflation rates rise, consider placing some of your cash holdings in other investment vehicles.

Inflation-protected bonds

The U.S. Treasury offers two options that adjust for inflation: I Bonds and Treasury Inflation Protected Securities (TIPS). TIPS can be bought as mutual funds as well as individually. I Bonds must be purchased directly from the government. Can’t get much safer than a bond backed by “the full faith and credit” of Uncle Sam. Of course, there’s a downside, if there’s negative or low inflation, a regular Treasury bond could outperform TIPS.14

Health Savings Accounts (HSAs)

HSAs are triple tax advantaged by depositing money pre-tax, allowing it to grow free of taxes, then being distributed for specific medical expenses tax free. The tax advantage gives investments in HSAs a better chance of outpacing inflation.15

Eliminate debt

If there’s some variable rate debt tugging at your wallet, consider getting rid of it. During periods of inflation, as the Federal Reserve (the Fed) tries to fight back, interest rates on loans can rise. Variable-rate debt (credit cards, home equity lines of credit, variable rate mortgages, and even some private student loans) can see interest rate increases. Conversely, if you have a fixed, low-interest mortgage, cheaper dollars (thanks, inflation) can mean paying it back with a lower-valued dollar, so there’s no rush to pay that off if other investments appear more attractive. Debt in a period of elevated inflation can be something to think about.16,17,18

Avoid large purchases

If interest rates rise, car loans and mortgage rates stand to do the same. Couple that with inflation driving the cost of homes and cars and … is now really the right time for a new car?18, 19,20

Workplace investing

Workers with a long retirement horizon can pursue compound interest — growth upon growth — by investing in stocks or other assets that can keep pace, or beat, inflation over the long haul. Many workplaces offer retirement savings plans such as traditional and Roth 401(k)s or 403(b)s that also offer potential tax advantages. Employers often offer a “match,” paying into your own account to match what you’ve contributed. Though sometimes called “free money,” that’s not always the case as there may be a required vesting period before that money becomes yours. But if a workplace is willing to match some of what you contribute, it may make sense to contribute at least enough to get the maximum match.21,22,23,24

These are only a few things to consider as inflation grabs the headlines. A qualified financial pro can help run through these and other strategies.

Concerned about inflation? You’re not alone.

Inflation hasn’t been a big factor in a long time. Suddenly it seems like it’s on the tip of everyone’s tongue. People are worried. With rising prices, retirees are worried about outliving their savings. 25 Commuters are dealing with higher fuel costs. 26 Concerns are rising rapidly as polls show that while a small number of Americans were worried about inflation last fall, recently 60 percent cited deep concerns about inflation and 21% called inflation or rising gasoline prices their chief worry.27 President Joe Biden in May called inflation his “top economic priority.” 28

Americans are facing real challenges, riding bikes to avoid gas prices, feeling middle class aspirations slip away. It’s not your imagination.29

But there are things retirees, near retirees, and younger workers can do. Reducing variable rate debt, exploring appropriate investment options, and even planning to work longer to stretch retirement savings can be part of a comprehensive, mindful strategy.


Things to Consider

  • If inflation is a concern, consider working with a financial professional who can help you understand inflation-fighting options that may be right for you.
  • The Fed is taking action to control rising prices, but every move comes with consequences you may need to understand and adjust for.
  • Even money in a savings account is at risk during periods of inflation growth, losing real buying power even as the bottom-line total appears to remain stable.


Consumer Prices Up 8.5 Percent For Year Ended March 2022,” U.S. Bureau of Labor Statistics, April 2022
2 Inflation, Consumer Prices for the United States,” FRED (St. Louis Office of the FED), May 2022
3 10 Year Treasury Rate - 54 Year Historical Chart,” Macrotrends, May 2022
4 Best CD Rates for May 2022,” Bankrate, May 2022
5 Best Savings Accounts for May 2022,” Bankrate, May 2022
6Guide to Inflation,” Investopedia, updated May 2022
7As Inflation Swells, These Savings Strategies Can Help Stretch Your Dollar Further,” CNET, April 2022
8China’s Lockdowns Are Squeezing Factories Far and Wide,” Bloomberg, May 2022
9Inflation And Retirement: What You Need To Know,” Forbes, March 2022
10What Does Increasing Life Expectancy Mean For The Future Of Work?” AARP, accessed May 2022
11When to Start Receiving Retirement Benefits,” Social Security Administration, accessed May 2022
12Inflation Is Taking A Big Bite From Retirees’ Pension Income,” CNBC, April 2022
13Should I Get a Financial Advisor,” U.S. News, January 2022
14TIPS and STRIPS,” FINRA, accessed May 2022
15Publication 969 (2021), Health Savings Accounts and Other Tax-Favored Health Plans,” IRS.gov, accessed May 2022
16Here’s What The Fed’s Half-Point Rate Hike Means For Your Money,” CNBC, May 2022
17Does Inflation Favor Lenders or Borrowers?” Investopedia, April 2022
18Why Now Is Not the Time To Pay Off Your Mortgage Early, According To Experts,” Yahoo Finance, February 2022
19Rising Interest Rates Mean Higher Loan Costs When You Go To Buy A Car. Monthly Payments Already Average $650,” CNBC, May 2022
20US Home Prices Rose By Nearly 20% Year-Over-Year In February,” CNN, April 2022
21Making Smart Investments: A Beginners Guide,” Harvard Business Review, August 2021
22401(k) Investing,” FINRA, accessed May 2022
23Smart Automatic Retirement Plan Investing,” FINRA, accessed May 2022
24An Employer 401(k) Match Is ‘Free Money.’ Here’s How to Maximize It,” Time, January 2022
25Inflation Has Many Retirees Worried About Outliving Their Savings,” NPR.org, February 2022
26Gasoline Prices Hit a Record High, Again,” NPR, May 2022
27Inflation Dominates Americans' Economic Concerns in March,” Gallup, March 2022
28Statement by President Biden on Consumer Price Index in April,” The White House, May 2022
29 “‘I Was Middle Class, And Now I Feel Like I’m At The Poverty Line.’ Inflation Is Hitting Mass. Residents Painfully Hard, Despite Rosy Big-Picture Stats,” Boston Globe, updated May 2022


Transamerica Resources, Inc. is an Aegon company and is affiliated with various companies which include, but are not limited to, insurance companies and broker dealers. Transamerica Resources, Inc. does not offer insurance products or securities. The information provided is for educational purposes only and should not be construed as insurance, securities, ERISA, tax, investment, legal, medical or financial advice or guidance. Please consult your personal independent professionals for answers to your specific questions.