How Will Inflation Impact Your Retirement Nest Egg?

Phil George

For the last two years, our country has seen pandemics, financial crises, and civil unrest.  Just when it looks like we might be turning the corner on Covid, along come indicators that should be making you wonder if inflation will negatively affect your retirement nest egg.  In a recent article from Kiplinger entitled, “How Big of a Threat Does Inflation Pose to Your Retirement?”, authored by Joseph Donti.  In this article, Mr. Donti explains why we could be looking at another surge of inflation over the next few years, what that inflation might do to your retirement savings, and finally gives us tips for how to protect your retirement.  Is inflation really knocking on our door?  How will that inflation affect your retirement finances?  Why doesn’t the standard advice go far enough to protect your Retirement Plan.

Is inflation really knocking on our door?  In his article, Mr. Donti explains that “The 5.4% rise in the consumer index in the last year marked the highest inflation in almost 13 years.”  You can’t argue with the fact that your dollar just doesn’t stretch as far as it used to.  In a recent article on, entitled, “Why is Inflation Rising Right Now?”, by Taylor Tepper, we find more detail to back up our feeling that prices are indeed going up.  Mr. Tepper says that, “The gasoline index alone rose 6.1% in October (2021)”, and that other major inflation indicators were following suit.  He goes on to say that new vehicles are now “. . . 9.8% higher compared to 12 months prior.” and “Over the past year, food is 5.4% higher.”.  So, the answer to that question is, yes, it appears as though we are in for an inflationary trend.  But how will that affect your retirement?

Now that we know inflation is really here, what can you expect that to do to your retirement.  Mr. Donti says that there are two main ways that inflation can affect your retirement.  The first is that, “Even moderate inflation can have a significant effect on a retiree’s savings.”.  The article goes on to say that the target inflation rate is 2% but at even a modest annual inflation rate of 3% you could really see a hit on your savings.  “If you needed $60,000 for you first year of retirement, in 20 years [at 3% annual inflation] you would require $108,366.67 to match today’s purchasing power of $60,000.”  To put it another way, “At 3% annual inflation, that initial $60,000 would be worth only $33,220.55 in 20 years.”  That would be quite a hit to any retiree’s savings account.  The second way that inflation really impacts someone’s retirement is that a foundation of retirement income, Social Security, just isn’t keeping up.  Mr. Donti points out that, “. . . the average Social Security benefit has lost almost a third of its buying power since 2000 . . . “and that this loss of buying power has occurred, “. . .despite yearly cost-of-living adjustments. . .”.

Now that we know inflation is here for the foreseeable future and how it might potentially affect our retirement, Mr. Donti gives us four methods of mitigating this risk.  Those are:

  1. Understand That Fixed-Income Sources In Retirement Probably Won’t Keep Pace With Inflation.  You probably won’t be making enough off of a low interest savings account or CD to keep up with inflation.  This makes it important to revisit your investments to make sure your retirement plan is protected against inflation.
  2. Calculate The Size Of Your Retirement Nest Egg.  Find out exactly how much you have in retirement savings and consider what inflation might do to the buying power of your nest egg.
  3. Find Out If You Will Need To Change Your Investment Strategy As You Prepare For Retirement.  If you haven’t already retired, find out what can you do now to change your investment strategy to protect against inflation.
  4. Consult with a professional.  Talk with a professional who can help you navigate these inflationary pitfalls in retirement planning.

I agree with Mr. Donti that inflation is coming our way and that we need to change how we plan so that inflationary pressures don’t torpedo our retirement.  I especially agree with his sentiment that it is important to consult with a professional.  I would add, however, that just seeing a professional and talking about inflation won’t set you and your family up for a successful retirement.  There is a reason that most estate and retirement plans fail in retirement and that’s because we don’t integrate our planning.  Talking about retirement savings is important, but even more important is talking about how inflation is retirement savings in the context of how it will impact our access to health care or whether we need to change our housing plan.   To do that you need to do more than just sit down with a Financial Professional.  Visit us at today and sign up for a FREE Estate and Retirement planning seminar.  Let us show you how to craft an estate and retirement plan that sets you and your family up for success.