The resurgence of inflation over the last few years has made us realize the adverse effects of rising prices on our lives. It’s important to consider inflation if you are retired or planning for retirement.

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Retirement brings some big changes to most people’s financial status. As they approach the end of their working careers, most people are earning the most money they ever have. With that success, they have money to afford a new car, travel, and save for that upcoming retirement.

When you retire, the paradigm shifts. You will apply for Social Security, which, for most, pays a modest amount each month. If your retirement savings are IRAs, a 401k balance, or other investment accounts, you have a sum of money that you must manage, which will pay you an income. The money must last for the rest of your life.

For someone retiring in their 60s, retirement years could run for 30 years or longer. Inflation over those decades could put a severe crimp in your retirement lifestyle, or even cause financial hardship just when you may most need to have strong financial assets.

Inflation is a constant factor. Prices always go up. Sometimes, inflation is low, below 2%. In other years, like last year, prices can increase by 9% year over year. Over a few decades, the effects of inflation can be devasting. Let’s look at a few examples:

• In 1993, the average cost of a new car was $17,903 (Dept. of Energy). According to Statista, the average selling price in 2023 was $47,010.
• The Medicare Part B premium for 1993 was $36.60 per month. In 2024, those on Medicare pay at least $174.70 per month. In 2007, Medicare started adding income-related premiums for “high-income” earners. For example, my Social Security check is getting whacked for $237 per month for Medicare.

Put another way, inflation erodes your spending power. If inflation averages 3% in 30 years, the value of your money will be cut in half. If you retire with $1 million, after three decades, that million dollars would buy only $500,000 worth of goods and services.

I have a solution for inflation in retirement. Earning a 9% to 10% cash return each year provides more certainty than trying to ride and time the stock market’s ups and downs.

That certainty of cash income lets you plan for a dependable retirement income. You can also plan to reinvest a portion of your dividend income each year, which will allow your portfolio income to grow and you to give yourself a raise each year.

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