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Inflation’s Impact on Saving for Retirement

Inflation reduces your money’s purchasing power, so you can’t buy as much with the same dollar amount over time. Without accounting for the likely impact of inflation over time, your planned retirement savings goal might not be enough to support you in the future.

Inflation and retirement don’t need to be a bad combination. Everyone from young savers to retirees should understand how inflation affects retirement. Here are some tips to help you plan for retirement accordingly.

  • Use a retirement calculator with inflation factored in. This will allow you to adjust your inflation and spending assumptions for different scenarios.  
  • Know how much you spend on goods and services today and project your future costs using an inflation retirement calculator. This will help you set realistic goals for retirement savings to maintain your current lifestyle, or what you think you’ll need in retirement.
  • Save and invest early and often to give your money time to grow. While the power of compounding interest isn’t magic, you may be surprised by how length of time in the market could matter more than how much money you invest.
  • Utilize tax-advantaged accounts like Roth IRAs, 401(k)s, HSAs, and 529 plans that can help you shield your funds from inflation’s bite over time. Learn about our IRA options and how it can work for you.
  • Maintain investments in assets that tend to increase when inflation rises. These can include stocks, bonds, real estate, and some commodities.
  • As a retiree, allocate money to accounts that still yield interest. Set aside enough cash in a High-Yield Savings Account or Money Market Account and consider laddering Certificates of Deposit (CDs) or Bonds to cover essentials like food and housing during rising inflation and volatile markets.
  • Consider working with a financial advisor to better protect your retirement savings from inflation, by investing in a well-diversified portfolio.
    • Speak with Shelley Hertel AAMS®, CRPC® at credit union of Denver’s Investment & Retirement Center for financial planning. She can assess your current situation and offer suggestions around what you should do to reach your financial goals. 303.239.1179

Prices are always in flux, but inflation trends up over time. However, it’s important to keep in mind that high inflation does not last forever. It is not something that should keep you up at night, especially if you have an emergency fund and well-diversified portfolio. If you don’t have those things, focus on saving between three-and six-months’ worth of living expenses and go from there.


Sources and enhanced by Credit Union of Denver

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