9 Tragic Ways Inflation Can Sink Your Retirement Savings

Your future plans for retirement could take a hit because of current inflation trends.

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Updated May 28, 2024
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Inflation is rampaging across the global economy. Supply-chain issues and other factors are pushing prices higher on everyday items ranging from gas to food.

Whether you are a retiree now or hope to be someday, inflation can have a devastating impact on your retirement savings. You may see spending power decrease as inflation puts pressure on your portfolio.

Check out some of the places that inflation can hurt your retirement plans.

It can erode the value of your dollars

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It’s always a good idea to set a budget, but it is particularly important once you retire. Now that you don’t have income from a job, it is crucial to know how much you’ll need for everyday expenses or one-time costs such as vacations.

As you craft this budget, remember that you’ll also have to factor in inflation. Higher prices can erode the value of the dollars you have saved, which can crimp your budget and force you to cut back on spending.

Accounting for — and adjusting to — how inflation might reduce your spending power can be the difference between sinking your retirement plans or putting yourself in a good spot to maintain your lifestyle throughout retirement.

It may force you to take Social Security early

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If you’re planning to retire soon, you are probably wondering when you should file for Social Security benefits. Today’s inflationary trends might impact when you decide to start collecting these benefits.

Holding out until you’re 70 years old before filing can maximize your monthly benefits. However, inflation may force you to start collecting earlier than that to cover increases in everyday expenses.

If you decide to start collecting your Social Security benefits early, remember to adjust your long-term retirement budget accordingly to account for the fact that you will get smaller monthly Social Security payments throughout your golden years.

 6 Ways to Supplement Social Security 

It makes everyday purchases costlier

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Inflation sends prices higher on everyday items like gas and food. That could be a big hit to your budget if you’re retired and on a fixed income.

To beat inflation, find cheaper alternatives to everyday products. Do more comparison shopping at the grocery store and look for the products you need at the best prices.

Pro tip: There are some affordable items retirees could buy at Costco. It might be worth adding a membership to the warehouse club if it will help you save some money and stretch your retiree income.

It can make travel more expensive

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Many seniors want to travel more when they’re retired. But when inflation goes global — as it is now — those costs can add up quickly depending on where and when you want to go.

Understanding inflation and its global reach to international destinations might make you reconsider your travel goals. Finding different ways to travel on a budget can keep vacation plans on track instead of allowing higher costs to derail your vacation dreams.

Related: These are the best travel credit cards for rewards and perks.

It can roil the economy — and your stock portfolio

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Many Americans have a large part of their retirement savings invested in a 401(k) or 403(b) account. That nest egg could take on a few cracks depending on how inflation impacts the economy and the stock market.

Review your investment portfolio now to see if changes are necessary. Having the right asset allocation may help you weather a bear market if inflation sends stocks south. For example, if you have a lot of stock invested in the company you work for, you might consider selling shares so you can invest in other stocks or a broad index fund and give your portfolio more balance.

No one investing solution is right for every investor, however. So, if you are unsure of where to put your money to work, consider working with a fee-only financial adviser.

It can make Medicare more expensive

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Long before the current wave of inflation, health care costs were already rising. Contrary to what some people think, Medicare isn’t completely free for most Americans. So, it is important to factor the rising costs of monthly Medicare premiums into your retirement budget.

Those monthly premiums are adjusted for inflation. That means today’s premiums will not be the same year after year.

Pro tip: If you have not yet retired, one way to cope with inflation and its potential impact on your future retirement is to save money now in a health savings account. You can make contributions to an HSA that will never be taxed as long as you withdraw the funds to pay for qualified medical expenses.

Contributing to an HSA now might save you some extra cash later on, helping to mitigate price increases due to inflation during your retirement.

It can make long-term care more expensive

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Long-term care is expensive. A private room in a nursing home can run you about $253 a day, or $7,698 per month, according to the U.S. Department of Health & Human Services.

If inflationary trends continue, those costs could rise. It is possible that long-term care insurance could help tame this expense, but premiums can be expensive. And although there is a good chance you will need long-term care at some point, you might not need it at all.

Carefully weigh the pros and cons of adding long-term care insurance to your monthly costs after you retire.

It can lift the cost of housing

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Housing costs have been on the rise, which can be tough at any age. But rising prices bite even harder when you are retired and on a fixed income.

If you plan to buy a new home during retirement, inflation can make it more difficult. In addition to a mortgage, you also may need to factor in the rising costs of everyday bills such as utilities or property taxes. All of these expenses can eat away at your retirement funds.

If you already own a home, one way to keep costs lower might be to rethink your plans to sell your home and move during retirement. This is especially true if your retirement dream includes buying a home in a market where housing costs are considerably higher than where you live now.

It might make you more cautious when spending

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All of these rising prices can quickly take a toll on your savings. So, you might need to rein in your spending significantly if you want to make those savings last.

For example, going out to eat when inflation is pushing food prices higher can quickly sap your savings. Consider getting in the habit now of spending even less on food than your budget allows.

Pro tip: See if you qualify for senior discounts at restaurants and other businesses to help you save money during a period of high inflation.

8 Ways Seniors Are Throwing Away Money

Bottom line

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Inflation can affect everything from the price of your daily food purchases to the cost of obtaining long-term health care. But there are ways to stem the tide of rising prices. Take another look at your retirement plan and see if there are ways that you can adjust your spending and savings so inflation doesn’t hurt your retirement dreams.

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Author Details

Jenny Cohen

Jenny Cohen is a freelance writer who has covered a bit of everything, from finance to sports to her favorite TV shows. Her work has been featured in The Wall Street Journal, USA Today, and FoxSports.com.