9 Ways Inflation is Hurting Your Retirement Plans

Retiring takes a lot of financial planning. Inflation is one thing you’ll need to account for. The cost of living is constantly increasing, and it will likely cost more to live during your retirement than it does now. 

You’ll want to prepare yourself to combat grocery inflation and other price increases as a retiree.

Here are steps you can take now to help you prepare for higher prices in retirement.

You can use an inflation calculator from the U.S. Bureau of Labor Statistics (BLS) to show you how inflation has affected prices over the past several years. This will give you a better idea of how the value of the American dollar changes over time. 

When using the tool, keep in mind that inflation rates may fluctuate from year to year.

Food is something you will still need while living in retirement, and you can expect to spend more on your grocery bills in the coming years.

According to the U.S. Chamber of Commerce, the cost of groceries rose 5.3% this year. While 2022 has been an unusually high period of inflation, groceries still increase at an average of 1.3% during typical years.

Americans pay more for housing than for any other expense. During 2021 home costs increased by approximately 20% even though the inflation rate was less than 8%. 

Given that the price of housing has increased nearly 400% since 1985, you should prepare yourself for even higher costs when you retire.

Even if you plan to rent, you should expect to pay more. Rent costs also soar with inflation and are directly related to high home prices. Landlords also need to keep up with the higher living expenses and will likely pass those expenses on to tenants.

When gas prices rise, so do costs for many other items. 

Americans rely heavily on the transportation industry to deliver goods, such as groceries, medications, and other essential items. To offset the increased cost of delivering these products, companies raise prices.

Higher gas prices also mean spending more money to fill up your own car. The good news is you won’t have transportation costs to get to work. 

However, other transportation needs for health care, daily errands, or entertainment will increase your expenses. You can save money on gas by going out less.

Airline prices have increased dramatically since before the COVID-19 pandemic. A major driving factor for the high prices is the cost of fuel. Other factors include labor shortages and high debts.

Travel expenses could increase further over time. This is something to take into account if you plan to visit friends or family members who don't live nearby. 

Airfare is not the only long-distance travel expense impacted by inflation. Train and bus fare rates will likely increase as well.

Aging generally means you’ll have more health issues. It is not just prescription drugs and routine visits you need to plan for. Part of planning for retirement is preparing for unexpected expenses.

If you need long-term care or develop new or worsening health conditions, your health care costs will grow. 

The price of long-term care for seniors rises as facilities pay more in operating costs. And the cost of long-term care insurance increases with age too.

Having smart and long-term investments in your portfolio will help you better prepare for inflation during your retirement. 

These assets should grow in value and provide you with options for selling them at prices that reflect economic conditions at that time.

Given the accelerated rate of home price increases, real estate is one of the best long-term investments you can make. 

But there are many factors to consider, especially during times of increased inflation. Investing in rental property is another option you might consider.

Saving more money now will give you extra cash to help cover inflation during retirement. Reassess your budget and determine where you can save. 

Although Social Security applies cost-of-living adjustments, it won't replace your pre-retirement income. It's crucial to grow your retirement savings to make up the difference.

A financial advisor can help you plan for your future. They will evaluate your income, spending habits, and goals and make suggestions based on your situation.

Some financial advisors will also help you adjust your investment portfolio. This is especially beneficial if you need help making the right long-term investments. 

Your goal is to make a return on your investments, not lose money on them.

Inflation rates will impact your retirement. The cost of living increases as inflation rates rise, but there are things you can do to prepare yourself for higher prices. 

In addition to these tips, you can find ways to supplement Social Security income. This is especially important if you hope to retire early.