How will inflation impact my retirement savings?

1 min readLast updated January 30, 2024by Rachel Carey

According to the Unbiased 2023 Retirement Confidence Survey, nearly 60% of respondents flagged inflation as a major concern for retirement planning. How does inflation impact your savings?

What is inflation? 

Simply put, inflation is a generalized increase in the cost of goods and services. 

It’s normally triggered when demand for items outpaces the ability of producers to make them or when it becomes more expensive for a business to produce the same items. 

Inflation impacts the value of your money. Think about your weekly trip to the grocery store. You may think $200 is plenty to get what you need for the week, but as prices rise, you’ll find your $200 doesn’t stretch as far as it once did.  

In the US, sharp increases in inflation are relatively rare. But with war, government stimulus, and increases in the cost of global production all having an impact, inflation in the US has risen to new highs.  

While there are different ways of calculating inflation, according to government figures, inflation reached a 40-year high of 9.1 percent in June 2022. 

Although it has been steadily falling since then, coming in at 4.05% for May 2023, the impact of high inflation remains.  

How will inflation affect my retirement savings? 

Inflation can impact your retirement during both the saving and spending stages.  

When saving for retirement, the advice is to start as early as possible and save as much as possible. High inflation can make this advice difficult to follow.  

Daily essentials become more expensive. Interest rates may also rise, driving up repayments on mortgages and loans. Consumer goods and mortgages suddenly become more expensive, and the money you’ve saved won’t be worth as much as it was when you started saving.  

In real-time, inflation erodes your cash savings and can make it harder to reach your financial goals.  

Dealing with inflation during retirement isn’t much better. You’ve likely budgeted to live on a certain amount each year. This calculation has been years in the making, and you’ve saved and planned accordingly.  

Inflation can decimate your savings, throwing budgets out the window. With higher prices across the board, the amount you earmarked to last you for one year may only now last for nine months.  

This, in turn, can affect your standard of living and your planned retirement lifestyle. If you intend to go traveling or even eat out more, you may have to rethink your plans.   

How does inflation impact my Social Security benefits? 

While inflation does not directly impact how much you receive from Social Security, it’s important to note Social Security benefits do factor in a cost-of-living increase.  

Since 1975, Social Security's general benefit increases have been based on increases in the cost of living, as measured by the Consumer Price Index. 

The cost-of-living adjustment (COLA) for 2023 saw an increase of 8.7 percent, the highest in four decades, bringing the maximum amount of earnings subject to the Social Security tax to $160,200.  

For 2024, predictions are much lower. According to The Senior Citizens League, one of the nation’s largest nonpartisan seniors' groups, 2023 COLA could be around 3.1% despite prices remaining high.  

While it’s ill-advised for retirees to depend solely on Social Security, the COLA is a welcome boost to your income.  

How do I factor inflation into my retirement planning? 

Creating a financial plan helps you make life’s big financial decisions. It also enables you to navigate those curveballs life tends to throw at us from time to time.  

When it comes to your retirement, you should factor in all eventualities in your plan – including inflation.  

Some of the ways you can minimize the impact of inflation on your retirement income include: 

  • Downsizing your home – if your children are flying the nest, you may find your home is simply too big. Moving to a small house for your retirement not only makes sense on a practical level but is also a way to pocket some extra money for your new chapter.  

  • Diversifying your investments – inflation can really do a number of your investment portfolio. To mitigate this, it’s wise to add some inflation-savvy investments into the mix. Treasury Inflation-Protected Securities (TIPS) and Real Estate Investment Trusts (REITs) are two popular areas to invest in during times of high inflation.   

  • Get expert advice – when it comes to navigating trick situations like dealing with inflation, getting expert advice is invaluable. A financial advisor can help you make confident financial decisions about your future and help realign your finances to stay on track to meet your goals.  

At Unbiased, we empower you to make confident financial choices. Tell us what you need, and we’ll connect you to your perfect financial professional who can provide you with trusted, tailored, and timely advice. Find your perfect financial advisor today 

Senior Content Writer

Rachel Carey

Rachel is a Senior Content Writer at Unbiased. She has nearly a decade of experience writing and producing content across a range of different sectors.