As of the writing of this article, inflation has risen 0.2% in the past 12 months ending April 2025, putting the current inflation rate at 2.3%. When combined with declines in retirement savings due to stock market volatility, many retirees are getting hit with an economic one-two punch. Although this much financial uncertainty is worrying for everyone, here are a few ways you can protect yourself (and your nest egg) from retirement inflation.
Review Spending
Hopefully, if you’ve already retired you have created some sort of retirement budget that you plan to follow, based on guaranteed income and nondiscretionary expenses like your rent or mortgage. You don’t have much immediate control over these aspects of your finances, so instead, go over your spending habits to assess discretionary expenses. Try to determine whether you can cut back or eliminate what you’re spending on items like cellphone plans, streaming services, subscriptions or active memberships. You should also scrutinize your credit card and insurance statements to ensure you’re not paying for anything extraneous, like coverage you don’t need or a rewards program you’re not using.
You also might consider switching credit cards to one with rewards that are more suitable to your lifestyle. Martin Lynch, president of the Financial Counseling Association of America, told Next Avenue: “Loyalty programs can really work.” He cites programs like the ones supermarkets offer that are free to customers who sign up for their loyalty cards, or the credit cards that pay up to 6% back on grocery and gas purchases, as particularly helpful.
The Importance of Investments
Although you’ll earn interest from the bank on money in your savings account, the interest rate you receive usually won’t match (or even come close) to beating the inflation rate, according to the personal finance website NerdWallet. That’s why they recommend that you invest your money if you can afford to, and grow that money’s value over time so that your retirement savings will hold onto its purchasing power for the future.
Finance specialists at Fidelity advise that you invest in assets that are “inflation resistant,” such as Treasury Inflation-Protected Securities (TIPS) or real estate. TIPS are government bonds specially designed to protect against inflation, with fluctuating principal values to ensure that your investment maintains its purchasing power. (These differ from traditional bonds, which have an inverse relationship to interest rates.)
Even though the stock market is a volatile place right now, many investment specialists reiterate that stocks have proven to be effective at outpacing inflation over long periods of time. Subsequently, many experts advise that if you can, consider investing in a mix of equities, looking for companies with strong pricing power (i.e., those that can pass on costs to consumers without losing market share).
Finally, many specialists warn against hanging onto cash assets as a buffer against unexpected events. When interviewed by NerdWallet, CPA Tony Molina said that “the impulse to hang onto as much cash as possible is an understandable one, and it can feel reassuring to accumulate more of it in challenging situations.” However, if inflation means that your money will probably buy less over time, this isn’t a winning strategy. Molina suggests investing the money you don’t intend to use in the next three to five years so that you can avoid this decrease in purchasing power. (Note: This doesn’t mean you should forgo a healthy emergency savings account of some sort — just that it shouldn’t be your only recourse.)
Reassess Your Emergency Savings
Speaking of emergency savings accounts, it’s a good idea to make sure you have enough liquid assets to support you for the next few years, in case the economy continues to tank. David Peterson, head of Wealth Planning at Fidelity Investments, says, “While it may not be wise to leave a lot of investable assets in cash, it’s still important to be prepared for any short-term liquidity needs. When prices are rising, you may want to add to your emergency savings, to help ensure you’re able to cover the costs of an unexpected expense should one arise.”
It’s generally recommended that you set aside enough savings to cover three to six months’ worth of essential expenses. In a time of high inflation, it’s a good idea to review your emergency savings to make sure they can still cover what you need them to.
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