Understanding Inflation and Protecting Your Retirement Savings

Inflation is a term we hear often, especially when the prices of goods and services seem to creep upward over time or the size of a commodity gets smaller for the same price. But what exactly is inflation, and how can we protect our retirement savings from its effects? To build a strong retirement plan, it's crucial to understand how inflation works, what constant dollars mean, and the strategies you can employ to safeguard your hard-earned savings.


How Inflation Works


Inflation refers to the general rise in prices over time, which reduces the purchasing power of money. In simpler terms, the dollar in your pocket today won’t buy as much in the future as it does now. 


One of the causes of inflation is the imbalance between supply and demand in an economy, often fueled by factors like increasing costs of production, labor, and demand for goods.


Economists generally distinguish between two types of inflation:


  1. Demand-pull inflation occurs when the demand for goods and services exceeds supply, driving prices higher.
  2. Cost-push inflation happens when the cost of producing goods increases, prompting businesses to raise prices to maintain profit margins.


Both forms lead to the same outcome: your money becomes less valuable over time. Inflation is often measured using the Consumer Price Index (CPI), which tracks the price changes in a basket of commonly used goods and services, like cereal, lumber, toothpaste, medical costs. 


The Concept of Constant Dollar

The term “constant dollar” refers to the value of money after adjusting for inflation. It helps compare the purchasing power of money over different periods. For example, if you earned $50,000 in 2024, with an average inflation per year of 3%, in ten years, that same $50k would only have the buying power of $38, 321. So that same income, only has 76% of the purchasing value it did ten years prior. 


In coffee terms, a $5 cup of coffee today, could be $10 in the future for the same size. 


In retirement planning, understanding constant dollars is essential. It prevents you from overestimating the value of your savings and helps create a more realistic financial plan. 


Inflation and Retirement: The Silent Erosion of Savings

Inflation can significantly impact your retirement if you don’t take it into account. Let’s say you have $500,000 in retirement savings today. Assuming an average inflation rate of 3% per year, the value of your money will halve in about 24 years. This means that by the time you're in the middle of your retirement, your savings will buy far fewer goods and services than it did initially, making it difficult to live comfortably.


Additionally, healthcare costs, a significant expense during retirement, tend to rise faster than the general inflation rate, potentially putting retirees at financial risk.


Insulating Your Retirement Savings from Inflation

Inflation doesn’t have to derail your retirement plans. With the right strategies, you can protect your savings from its long-term effects.

Invest in Inflation-Linked Assets


One way to hedge against inflation is by investing in assets that typically outpace it. Historically, stocks have outperformed inflation over the long run, making them an essential part of a retirement portfolio. While stocks are volatile in the short term, they offer growth potential that can help counteract the eroding effects of inflation, over the long haul.


Example: A balanced retirement portfolio might include a mix of stocks, bonds, and other assets like real estate. This diversification spreads risk while allowing for growth. 


You can also consider Treasury Inflation-Protected Securities (TIPS). These government bonds are designed to protect investors from inflation. The principal value of TIPS increases with inflation, ensuring your purchasing power isn’t eroded.

Maintain a Portion in Equities Even in Retirement


While conventional wisdom used to suggest shifting entirely to bonds or fixed-income assets in retirement, many financial advisors now recommend keeping a portion of your retirement portfolio in equities (stocks). This is especially important if you expect a long retirement—20 or 30 years—where inflation could erode your savings.


Action Step: Consider keeping 75-80% of your portfolio in low-risk investments, with the balance in growth focused investments depending on your risk tolerance and financial goals. That growth can balance against inflation over time.

Real Estate as an Inflation Hedge


Real estate often appreciates over time and can provide a solid hedge against inflation. Property values tend to rise with inflation, and if you're renting out a property, rental income typically increases over time as well.


Example: Investing in rental properties can offer both income and potential appreciation, giving retirees a cushion against rising prices.

Delay Social Security to Maximize Benefits


Delaying Social Security until age 70 can be an effective strategy for increasing your inflation-adjusted income. The longer you wait, the larger your monthly benefit can be. Given that Social Security payments are adjusted for inflation annually, maximizing this benefit can provide a steady income stream that rises with the cost of living.


Action Step: If possible, delay claiming Social Security to increase your monthly income and provide inflation protection.

Consider Inflation-Protected Annuities


Another option for retirees is to purchase annuities that are indexed to inflation. These financial products offer regular payments for life and can help ensure you don’t outlive your savings. 

Practical Actions You Can Take


  • Reevaluate Your Financial Plan Regularly: Inflation rates can fluctuate, so it’s important to reassess your retirement plan every few years. Make sure your investment mix is still appropriate for your goals and consider any inflationary trends that could affect your long-term purchasing power.
  • Create a Budget with Inflation in Mind: Factor in an average inflation rate of 2-3% when budgeting for retirement. This can help you avoid surprises and ensure your savings last.
  • Monitor Healthcare Costs: Since healthcare inflation outpaces general inflation, you should factor in rising medical costs when planning for retirement. Consider long-term care insurance or creating a dedicated healthcare fund.
  • Stay Informed: Keep an eye on inflation trends and consider working with a financial advisor to adjust your strategy as necessary.

Conclusion


Inflation may be inevitable, but its impact on your retirement doesn’t have to be devastating. By understanding how inflation works, adjusting your retirement strategy with constant dollars in mind, and taking proactive steps like investing in inflation-protected assets, you can safeguard your retirement savings and maintain financial security well into your golden years.

Leaking Money Series – Part Four: The Balance of Opposites

September 2, 2025
Welcome to Part 4 of our Leaking Money series: The Balance of Opposites. Here we dive into the everyday spending decisions that can quietly chip away at financial wellness—often without a person realizing it. Trendy vs. timeless. Cheap vs. quality. Fix vs. replace. New vs. used. Keep vs. upgrade. Most people do one or the other all the time. Always buying new, for example, when used or repaired would work just as well.  Most people go about life with whatever the status quo has always been, rather than actively considering other options. It is less about choosing the “cheaper” version of the opposites and more about recognizing when each option will serve best. Rather than money leaking, an active choice is made. Soon, a variety of options are considered and spending becomes intentional vs habitual. And… ideally investing that difference in the future, whether that is debt reduction or retirement. The goal: plug the holes silently leaking money and invest the saved money elsewhere.

Leaking Money Series: Part Three - Out of Sight, Out of Mind: The Hidden Ways Money Leaks from Your Wallet

September 2, 2025
Even if the budget is dialed in, retirement saving is being invested, and the big items are being reviewed… those items out of sight and out of mind items may be leaking hard earned money. If left unchecked, it can have long-term consequences, especially for retirement savings. Unlike major financial mistakes, money leaks are typically small, recurring costs that add up significantly over time. Because they’re spread out and relatively minor individually, they rarely trigger alarm bells. A few minutes of awareness and action can save hundreds (or more) over the course of a year! In this four-part series, we explore hidden ways people leak money and cover specific steps to “plug” the holes. This article covers those “out of sight, out of mind” leaks that most people don’t even think about.

Leaking Money Series: Part Two – Shopping: Seven Shopping Behaviors That Are Draining Your Money

By Aaron Picart • September 2, 2025
In this four-part series, we explore hidden ways people leak money and cover specific steps to “plug” the holes. It's easy to lose track of spending when small habits add up. These seven shopping behaviors might seem harmless, but they're quietly draining your money—and could be holding you back from a stronger retirement: Online Social Boredom Retail Therapy Occasion Impulse Envy Status Money has a funny way of disappearing. You work hard for it, save diligently, and plan for the future—but somehow, there never seems to be enough left at the end of the month. This phenomenon is known as "leaking money," the gradual and often unnoticed loss of funds through unnecessary expenses, inefficient financial habits, and lack of awareness. If left unchecked, it can have long-term consequences, especially for retirement savings. Unlike major financial mistakes, money leaks are typically small, recurring costs that add up significantly over time. Because they’re spread out and relatively minor individually, they rarely trigger alarm bells. However, their cumulative effect can be devastating to your overall financial health. Hidden Ways Money Leaks while shopping (and actions to take) There are many reasons we shop: needs, as an event, socializing, boredom, therapy, impulsive, envy, status. And many of these cause money leak. Not the kind you plan for, like groceries or back-to-school supplies—but the kinds that sneak up and chips away at goals. Here are some common shopping habits that might be costing you more than you think:

Leaking Money Series: Plugging the Hidden Holes in Your Finances. Part One – Food

August 7, 2025
What if by making some simple food changes, you could have $62,053 more in your retirement kitty in just ten years? By making simple changes in these five categories, you can make a significant difference. Food Waste Outside the Home Online meal delivery Shopping Composition Shopping Locations Money has a funny way of disappearing. You work hard for it, save diligently, and plan for the future—but somehow, there never seems to be enough left at the end of the month. This phenomenon is known as "leaking money," the gradual and often unnoticed loss of funds through unnecessary expenses, inefficient financial habits, and lack of awareness. If left unchecked, it can have long-term consequences, especially for retirement savings. Unlike major financial mistakes, money leaks are typically small, recurring costs that add up significantly over time. Because they’re spread out and relatively minor individually, they rarely trigger alarm bells. However, their cumulative effect can be devastating to your overall financial health. In this four-part series, we explore hidden ways people leak money and cover specific steps to “plug” the holes. As a bonus, the example savings will be added up for a total amount that could be invested.

Managing Retirement Throughout Your Life: A by Decade Guide to Financial Organization

By Benjamin Eizenga • August 6, 2025
Retirement planning is a lifelong journey that evolves as career, goals, and life circumstances change. Whether just starting a career, in peak earning years, or approaching retirement, taking an organized and strategic approach to managing investments is crucial. This article lays out a roadmap by decade for your retirement journey.

The Cost of Procrastination: Why Waiting to Plan Your Financial Future is Costing You More Than You Think

By Karen Hansen • August 5, 2025
We all procrastinate in some areas of life—putting off that dentist appointment, delaying the gym membership, or avoiding that home repair project. But when it comes to financial planning, procrastination can have serious long-term consequences. The cost of waiting can translate into lost opportunities, higher expenses, and increased stress. So why do people put off financial planning, and what does it really cost? More importantly, how can you take simple steps today to set yourself up for a more secure future? Let’s break it down.

Protecting Yourself Financially from Hackers and Data Leaks: More Than Just Financial Advice

By Karen Hansen • November 5, 2024
When you think about advice from a financial advisor, you probably expect tips on budgeting, retirement planning, or investment strategies. But in today’s digital age, financial security goes beyond managing your money—it also means safeguarding your personal data from hackers and fraudsters.  Cybersecurity may not be the first thing that comes to mind when you think of financial health, but the two are closely linked. A data breach can lead to identity theft, drained accounts, and long-term financial damage. That’s why this article isn’t just about building wealth—it’s about protecting it. Let’s explore how you can defend your finances from hackers, RFID theft, and data leaks, and take steps to ensure your hard-earned money stays safe.

The Power of Financial Compounding: Why Starting Early is Key to a Secure Retirement

By Karen Hansen • November 5, 2024
When you’re in your 20s or 30s, retirement might seem like a distant future, something to worry about later. But the truth is, the decisions you make now can have a massive impact on your financial well-being in the years to come. The key to building a secure financial future lies in understanding one of the most powerful concepts in investing: compounding. In this article, we’ll break down how compounding works, why it’s so crucial to start saving early, and provide examples that illustrate its transformative power. What is Financial Compounding?  Compounding is the process where your investment earns returns not just on the original amount you invested (the principal), but also on the returns that investment has already generated. It’s often referred to as “interest on interest,” and it’s what can turn a small initial investment into a substantial sum over time.

Retirement Planning Push: Time to Review, Reassess, and Realign

By Karen Hansen • November 5, 2024
As you approach your 40s and 50s, retirement is no longer a distant dream—it's rapidly becoming a reality. Whether you’ve been diligently saving and investing for years or just started to take retirement seriously, now is the critical time to review, reassess, and realign your financial strategies. Your future self will thank you for taking the time to make sure you're on the right track. 1. Evaluate Your Current Situation The first step in your retirement planning push is to take stock of where you stand financially. By now, you’ve likely accumulated some savings in a 401(k), IRA, or other retirement accounts. But do you know how much you’ve saved so far and how it aligns with your retirement goals? Example: Let’s say you’re 45 years old with $300,000 saved for retirement. A rough estimate might suggest that you’ll need at least $1 million to $1.5 million to retire comfortably, depending on your lifestyle, health, and desired retirement age. This might seem like a big gap, but with the right planning and adjustments, it’s not insurmountable. Action Step: Calculate your current savings and compare them against a retirement savings benchmark. Use online retirement calculators to get a more personalized estimate of how much you should have saved by now and what you’ll need to save in the coming years.

The Importance of a Will: Protecting Your Children's Future

By Karen Hansen • September 3, 2024
As a parent, your primary concern is the well-being and future of your children. You work hard to provide for them, nurture them, and ensure they grow up in a safe and loving environment. But have you considered what would happen to them if you were no longer around? It’s a difficult thought, but planning for the unexpected is one of the most important responsibilities you have as a parent. This is where having a will becomes critical—especially when it comes to the guardianship of your children.