We all think about inflation when we go shopping or load the car with gas. At those times, we notice how much more money we’re spending compared to a few years ago (or months, in this case) and how much has changed since then. However, inflation doesn’t only affect the prices of everyday consumer goods, food, and gas; it also brings changes that should be considered in your long-term financial planning. 

Inflation will slowly but surely eat away at the value of your retirement savings. If inflation continues to rise over a longer period of time, then it can truly devalue your current income streams and your savings accounts. That’s why inflation should always be considered when making plans for the future. A good financial planner will thoroughly explain the impact that inflation can have on your retirement accounts so you can take the proper measures and shift your retirement strategy appropriately.

This article will take a look at all the ways inflation can affect your retirement accounts and savings, as well as what you can do to protect yourself against it. 

Impact on Income

After you retire, there are several ways you can continue to pay for your expenses, some of which are better than others when it comes to protecting yourself against inflation. Let’s check out what they are. 

Social Security

A large portion of retirees in the U.S. has Social Security benefits as one of their income streams after retirement. Many people above the age of 65 depend on it and claim their Social Security. Every year the government evaluates the current inflation rate and tries to change the Social Security payments so that people who rely on them don’t lose their purchasing power. That means that Social Security benefits are changed annually according to price indexes. 


It has been reported that 68% of retirees over the age of 65 collect pensions, and half of all retired people do the same. Having said that, it’s vital to note that pensions get affected by the inflation rate in numerous ways. Pension plans are usually connected to the salary that retirees receive during the last years of their professional life. If a period with high inflation occurs during retirement years, recipients’ benefits might be worse since they’re based on salaries that were received before the inflation. 

In other words, suppose a period of inflation happens after a person has retired. In that case, their benefits are created based on a salary that’s no longer relevant and doesn’t reflect what’s currently happening in the market. 

Additionally, pensions aren’t always adjusted according to the inflation rate. According to NASRA (National Association of State Retirement Administrators), around 75% of pension plans that local or state governments cover have some type of adjustment according to the cost of living. However, private pension plans typically don’t adjust according to changes in the cost of living. Thus the purchasing power of a retiree might become lower, even without them spending any extra money. 


Some individuals manage to save a large amount of money while they’re still working, which can lead to them retiring with a lot of cash savings in the bank. While having a lot of money readily available sounds excellent, it also poses a risk of devaluing those assets, mainly when high inflation occurs. 

Just think about what you could buy with one dollar 40 years ago compared to now. Retirees often live more than three decades after they retire, which means they should consider strategies to help them maintain the money (and the purchasing power) they already have. 

Inflation’s Impact on Retirement Accounts

Many retirees rely on their 401ks or IRAs for their post-retirement years. How those portfolios react to inflation is what can make a difference between living a relaxed lifestyle after you retire or having to get a job to afford the costs of living. 

Unfortunately, inflation does have an effect on your 401k or IRA plan. However, how much of an impact it will have largely depends on what kind of assets are included in your plan. Typically, inflation leads to an increase in a company’s revenue; however, it also makes it more expensive to manufacture, market, and distribute products. With that said, stocks and other investment tools usually don’t adjust to inflation right away, and if there’s an extended period of high inflation, that might drastically impact your 401k returns. 

Let’s look at a simple example. If the inflation rate gets to 9.5% and your 401(k) returns are 10.5%, then your net gain is just 1%. On the other hand, if your net return is 8.5%, you end up having no gain on your investments. In most cases, financial experts aim for returns of anywhere around 5% to 8% when it comes to 401(k) plans. 

As inflation rises, your investments have to work hard to keep up with it. The level to which you will notice this depends largely on how near you are to your retirement age and on the strategy you’re pursuing.

How to Protect Your Retirement Account from Inflation  

As an average person, you have no control over the inflation rate, as it’s impacted by multiple global factors. However, there are things you can do to protect your retirement savings from getting damaged by inflation. 

Manage Contributions 

When your expenses increase, and your paychecks can’t buy you the same things as before, it’s tempting to back down on your 401(k) contributions or other retirement plans. However, you have to try your best to contribute at least the minimum to get the full company match (if you have one) so that your money can grow over time. If it’s possible for you, a good idea is even to increase your contributions so that more money is going into the plan. 


Diversifying your investments is an action that would lead to you spreading your investments in different types of investment assets as a way to minimize risk. When inflation occurs, diversification is what can help manage the impact that the higher prices have on your retirement plan. 

Manage Investment Fees
Checking your investment fees and searching for options to lower them is a good idea at any time; however, specifically when inflation rises. The less you have to spend on fees, the more returns you can keep. When looking at your 401(k) plan, check what you’re paying in expenses for the funds that you hold; it may turn out that you can be paying less and earning more. 

What Should I Do to Protect My Money Against Inflation? 

Usually, this is the kind of question you have to ask a financial planner who knows your personal situation and your future financial goals. Some suggest Treasury inflation-Protected Securities or short-term bonds when inflation occurs. Others may advise you to go into Real Estate Investment Trusts that are tied to a short-term lease. You might also hear some alternative ideas like investing in assets such as commodities or gold. 

In any case, you will be advised to have an investment portfolio and to make it diverse so that it can serve as a protection against the risk you’re taking. The kind of assets you choose to invest in will largely depend on your future goals and where you want to be financially in your retirement years. Choosing how to protect against inflation is a decision you have to make carefully, as it may have an impact on other considerations that you had when creating your portfolio. 

In Conclusion 

High inflation can be a huge challenge for retirees, especially if they didn’t take the time to plan for it when considering their retirement strategy. Planning for and managing inflation can be tricky, as it is often largely unpredictable and influenced by multiple external factors that the general population has no control over.

If you want to protect yourself and your retirement accounts, the best thing you can do is consult with your financial planner. They can give you in-depth advice on what steps you should take to maintain your purchasing power and ensure all that you worked for doesn’t disappear due to events out of your control.

If you’re interested in receiving this guidance, our team at Alpha Wealth Funds is ready to provide you with a consultation and help you take steps to protect your future. 

Please feel free to reach out to me on this or any of your investment needs or questions. I may not always have the answers at my fingertips, but I promise I will get them for you. Michael Torrence

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Michael Torrence – Investment Advisor Representative: Michael was born and raised in Ohio and attended The Ohio State University. After College, he was commissioned as a 2ndLt in the United States Marine Corps. He attended his initial training in Quantico, Virginia, then graduated at the top of his Primary Aviator Class and was selected for the Strike (Jet) Platform.

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