How to Protect Your Retirement Savings from Inflation

Even a modest rise in inflation can stretch your budget thin in retirement. According to the U.S. Bureau of Labor Statistics, inflation spiked between 2021 and 2022, hitting a 40-year high of 9.1% in June 2022. While the January 2025 Consumer Price Index (CPI) report shows inflation cooling to around 3%, the damage from previous years still lingers, especially for retirees relying on a limited pool of savings. Social Security does offer annual Cost-Of-Living Adjustments (COLAs) that can help to some degree, but these increases often fail to keep up with actual inflation. So, your benefits might not stretch as far as they used to, which is why it is essential to plan for inflation.

You can hire a financial advisor when planning for retirement inflation and understand more about the best ways to inflation-proof your retirement. Additionally, you can also explore this article to understand how you can protect your retirement savings from inflation.

Below are 5 ways to protect your retirement savings from inflation:

1. Invest in stocks

While it is true that stock prices can be volatile and may even fall during times of rising inflation, history shows that, over the long run, stocks have outpaced inflation by a significant margin. The S&P 500 has offered an average annual return of around 10% over the past several decades. This return is well above the average inflation rate, which typically hovers around 2% to 3% over the long term. Such a difference can make a huge impact when it comes to preserving your purchasing power throughout your golden years. Stock investing becomes even more important when inflation is on the rise. Certain sectors of the market tend to perform better in inflationary environments. For instance, energy companies often benefit from higher oil and gas prices. Technology firms, food and agricultural companies, and healthcare stocks also tend to be resilient no matter the economic climate. Most companies pass on higher input costs to their customers, which helps them maintain their profit margins even as inflation rises. As a result, their stock prices often remain stable or even grow. This built-in shield helps investors during inflationary periods.

You might feel hesitant about stocks due to their ups and downs, but not all stock investments carry the same risk. You can lower the risk associated with stocks by investing in dividend-paying stocks or exploring large-cap stocks that have relatively lower risk. You can also build a diversified portfolio with a healthy mix of different options from different market capitalizations, sectors and even geographies, if possible.

It is also important to understand that investing in high-inflation investments like stocks is not a quick fix, but it is one of the most potent tools available for fighting off the slow drain that inflation can have on your retirement income. In retirement, you may want to keep the majority of your money in stable options. However, allotting some portion of it to stocks can be advised to ensure your portfolio keeps growing against inflation.

2. Do not let cash weigh down your wealth

Keeping too much cash can weigh your wealth down, as money sitting in a savings account rarely keeps up with inflation. In fact, it often loses value. When prices rise, and your cash savings do not grow, your purchasing power drops. During periods of market uncertainty, the instinct to move money out of investments and into cash is understandable. However, cash is not built to grow. Leaving too much of your portfolio in idle money can significantly impact long-term performance, especially during retirement. Most savings accounts earn less than 1% annually. If you compare that to an average long-term inflation rate, you will find that cash, while stable, is steadily losing ground. Over the years, this can create a real gap between what you have and what you need. Financial experts usually recommend keeping three to six months’ worth of your general expenses in an emergency fund. That is usually enough to cover unexpected costs without dipping into investments. But anything beyond that might be better off invested in other inflation-beating assets.

In retirement, it is important to strike the right balance. Having some cash for emergencies is wise, but too much can weigh your finances down. So, you must always keep your financial goals in mind when making a decision.

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3. Add Treasury Inflation-Protected Securities (TIPS) to your portfolio

Issued by the U.S. government, TIPS are a special type of Treasury bond designed specifically to keep pace with inflation. Unlike other government bonds, which pay a fixed rate of interest over their term, TIPS adjust both the principal and the interest payments based on changes in the Consumer Price Index (CPI). When inflation rises, so does the value of your investment. And when it falls, the value adjusts downward but does not go below your original investment amount. TIPS pay interest twice a year, and the interest is calculated on the inflation-adjusted principal. So, as the principal grows with inflation, your interest payments increase as well. At maturity, you receive either the inflation-adjusted principal or the original principal – whichever is higher. That is one of the reasons TIPS are considered among the most secure investments available. Moreover, because they are backed by the U.S. government, TIPS carry an extremely low risk of default. This makes them a suitable choice for you in retirement when you want to preserve capital while still protecting it from inflation.

TIPS can also help diversify your overall portfolio. Even though they may not offer the high growth potential of stocks, they can counterbalance inflation. However, it is important to understand the other side of the coin. Like all bonds, TIPS are sensitive to interest rate changes. When interest rates rise, the market value of TIPS, like other bonds, can decline. In some cases, the adjustments for inflation might not completely balance out these declines in the short term. So, while they protect against inflation, they are not immune to market volatility. Despite this, TIPS remain a smart way to add stability to your retirement strategy. They are reliable, especially during uncertain economic times. Including TIPS in your portfolio can provide inflation protection that helps your savings stay aligned with the cost of living.

Many retirees underestimate how powerful inflation can be, which is why an accurate inflation estimate for retirement planning is critical. One way to prepare is by reviewing historical inflation trends and consulting a financial advisor to understand how rising prices might affect your future spending. Based on this, you can consider constructing a TIPS ladder where you invest in a series of bonds with staggered maturity dates, each set to mature in a different year. One bond matures every year, covering your expenses for that specific year. For instance, you could buy 20 different TIPS, with maturity dates ranging from one to 20 years. Each year, when a bond matures, it will provide you with the cash flow needed for your expenses.

4. Plan your withdrawals, expenses, and taxes

When planning for retirement inflation, it is crucial to think carefully about how much to withdraw from your portfolio each year. This allows you to better manage the impact of inflation on your savings. Your lifestyle costs, healthcare needs, taxes, and inflation expectations should all play a role in your financial decisions in retirement. For instance, if you anticipate that inflation will be higher in the early years of retirement, you can start with more conservative withdrawals. This gives your investments more time to grow and helps reduce the risk of depleting your savings too quickly. On the other hand, if inflation remains low and your investment portfolio is performing well, you might be able to afford slightly higher withdrawals without jeopardizing your long-term financial stability. Another factor to consider is when to begin taking your Social Security benefits. For every year you postpone, up until age 70, your monthly benefit increases by about 8%. This can help combat rising costs down the road. However, this strategy is not right for everyone. Claiming your benefits sooner may make more sense if you need the income earlier. Make sure to weigh the pros and cons before making a decision.

You must also not overlook the role that taxes play in your retirement income and how they interact with inflation. When inflation rises, taxes can make matters worse by further cutting into your available savings. Creating a tax-efficient withdrawal strategy can help stretch your savings further. Working with a financial advisor or tax professional can also be helpful in building a plan that minimizes tax drag.

5. Make changes on the go

You can also make changes to your retirement plan on the go. If inflation rises faster than you expected or your original plan falls short, it is perfectly okay to adjust course over time. One practical option in such a scenario can be downsizing. You can do this by moving to a smaller home, switching to a more affordable car, or trimming some non-essential expenses like dining out or travel. These changes can be temporary or long-term, depending on your comfort level and financial needs. The important thing is to stay flexible and adapt when necessary.

If managing everything on your own starts to feel overwhelming, bringing in a financial advisor might also make sense. A professional can help you make sense of your current situation, recommend inflation-proof investments, and build a strategy that fits your lifestyle and goals. You can also use an inflation calculator to understand the impact of inflation on your savings and make timely decisions.

To conclude

Inflation will likely lower the value of your retirement fund, but if your money continues to grow, it can withstand some of the pressure. The key is to invest in assets that have the potential to keep pace with or outgrow inflation. The exact asset mix will depend on your financial goals and risk appetite. A financial advisor can help you build a well-balanced strategy tailored to your needs. Most importantly, you must aim to maintain a diversified portfolio and review it regularly throughout retirement. This way, your savings can stay protected even in the face of rising prices.

Use the free advisor match tool to get matched with seasoned financial advisors who can help you protect your savings from inflation. Answer a few simple questions based on your financial needs and get matched with 2 to 3 financial advisors who may be best suited to help you.

For additional information on retirement planning strategies that can be tailored to your specific financial needs and goals, visit Dash Investments or email me directly at dash@dashinvestments.com.

About Dash Investments

Dash Investments is privately owned by Jonathan Dash and is an independent investment advisory firm, managing private client accounts for individuals and families across America. As a Registered Investment Advisor (RIA) firm with the SEC, they are fiduciaries who put clients’ interests ahead of everything else.

Dash Investments offers a full range of investment advisory and financial services, which are tailored to each client’s unique needs providing institutional-caliber money management services that are based upon a solid, proven research approach. Additionally, each client receives comprehensive financial planning to ensure they are moving toward their financial goals.

CEO & Chief Investment Officer Jonathan Dash has been profiled by The Wall Street Journal, Barron’s, and CNBC as a leader in the investment industry with a track record of creating value for his firm’s clients.