How Inflation Affects Purchasing Power
March 7, 2025
Inflation, the gradual increase in prices over time, can significantly impact the purchasing power of retirees. For those already in retirement, a higher inflation rate means that the cost of living will rise, potentially outpacing the growth of their retirement savings. This could lead to a situation where retirees may need to adjust their spending habits or even consider part-time work to supplement their income.
After several years of extreme volatility, the latest Consumer Price Index showed a general increase of 0.4% for December 2024, bringing the 12-month index to 2.7%1. While things have settled down recently, there is no guarantee of what the future holds, and every retirement plan should account for future inflation and how it affects their plans.
For individuals preparing for retirement, it is essential to factor in the potential for rising costs. This means not only saving more but can also include investing in assets that have the potential to outpace inflation. Diversifying investments, considering inflation-protected securities, and regularly reviewing and adjusting retirement plans are all strategies that can help mitigate the impact of inflation.
Moreover, healthcare costs are a significant concern for retirees and accounting for an increase in related future expenses is vital for any plan. Long-term care insurance and health savings accounts (HSAs) can be valuable tools in this regard.
When considering how inflation should be factored into your planning, it can help to have a financial professional on your side. Contact us and schedule a meeting to speak to someone familiar with what to expect from your retirement expenses.