How Inflation Negatively Impacts Your Retirement

Inflation, a common economic phenomenon, often appears benign on the surface. However, its ripple effects can significantly impact our long-term financial health, especially regarding retirement planning. 

Learn more about inflation and how it negatively impacts your retirement aspirations.

Erodes Purchasing Power

Inflation significantly erodes the purchasing power of your retirement savings by decreasing the value of money within the current and future economy. 

Basically, your ability to live comfortably post-retirement becomes more difficult every year. For example, our national US inflation average of just over 3 percent can half an individual’s purchasing power in under a quarter-century. 

So, if you’re 50 and still saving for retirement, you risk losing out on the most comfortable retirement possible when you’re 75. Of course, inflation doesn’t remain at 3 percent all the time—it was just over 9 percent in the US last year! 

Therefore, it’s crucial to consider the impacts of inflation in your retirement planning to ensure your savings maintain their value over time. Working with a financial advisor is a fantastic way to manage inflation when creating your retirement plan.

Stifles Retirement Portfolio Growth

When prices rise, the real value of your investment returns may decline. For instance, inflation can erode this gain, even if your portfolio provides a seemingly decent return. 

If your investments return 9 percent in a year with an inflation rate of 8.5 percent, your actual gain is only 0.5 percent. This impact is particularly concerning for fixed-income investments such as bonds, which may not keep up with inflation. 

Moreover, higher inflation can disrupt retirement savings strategies, shrinking the value of the dollars in your 401(k) and other retirement accounts.

Creates More Stress & Uncertainty

Aside from the tangible financial hardships you may encounter during an economic downturn, inflation can create more stress and uncertainty when planning retirement. 

As the cost of goods and services increases, predicting how much you’ll need for a comfortable retirement becomes challenging. Considering the national average of 3 percent inflation annually, the cost of living could double in just under 25 years.

If you plan to retire in two decades, you might need twice as much in your retirement fund as you initially estimated. Furthermore, the unpredictability of inflation rates adds another layer of complexity. 

Inflation could be relatively low at 2 percent in one year, but it could spike to over 9 percent in another year. This fluctuation makes it difficult to plan accurately for the future.

Inflation Tips: Weathering the Storm

Weathering the storm of inflation requires active and strategic planning, especially for seniors protecting their retirement savings. 

First, you should diversify your investment portfolio. Include assets that often perform well during inflationary times, such as real estate or commodities, to maintain your savings’ value. 

Second, invest in Treasury Inflation-Protected Securities (TIPS). These government bonds adjust with inflation, ensuring your investment keeps pace with rising costs. 

Finally, review and adjust your retirement plan regularly. As inflation rates change, reassess your plan to make sure it stays robust against these economic shifts. These are just some of the many financial tips that can maximize your retirement in the near future and the long term.

Inflation is unavoidable in our economy, but that doesn’t mean your retirement plan has to suffer. Understanding how inflation negatively impacts your retirement prepares you for financial hardships and even sets you up for greater comfort and success.

Always Ready: 4 Tips to Deal with Any Problematic Financial Situation

Financial hardships can hit anyone at any time. How you handle the hardship can mean the difference between financial stability or becoming utterly destitute. Here are four tips that can help you turn a financial crisis into an opportunity.

Don’t Fall Victim to Procrastination

It’s very common for those who fall into a financial crisis to cope with the situation by procrastinating. They will find the easiest activities in which to dump their time to distract themselves from their problems. 

While this can help alleviate the stress for a very short time, the problem will only continue to grow worse. As with any problem, it’s best to deal with it as soon as it happens. 

If you need some time to deal with the stress, take a day to rest your mind so that you can focus and attack this problem head-on tomorrow.

Utilize What You Have

When a financial crisis hits, it can throw off everything else in your life. When bills come due, it’s going to be a nightmare trying to figure out how to get through the month. 



The best way you can prolong the stability in your life by using what you currently have in the house. You may not be able to go grocery shopping next week, but if you already have food in your fridge and canned goods in your cabinet, stretch those resources into meals for as long as you can. 

Some companies, like Discount Tire Centers, know that if the tires on your vehicle are bald or damaged, replace them with any spare tires you may have before going out to buy new tires. Use what’s in your home first before going out and spending money.

Make a Plan

In your downtime, find a quiet place to sit and think about what your next steps should be. This could include taking out a small personal loan, picking up a second job, pawning some of your items, selling some of your items, asking family for help, or downsizing into a smaller home with cheaper bills. 

Figure out what you could do in your life to help trim down some of your expenses and restore your financial stability.

Take Action

A plan is nothing without action. Once you’ve mentally mapped out a plan, the next step is to put it into action. You won’t be able to fully implement your plan in one day, so don’t expect to see immediate results. 

You must learn to have patience in times of crisis. Do what you can every day to bring your plan to fruition and when the opportunity presents itself, capitalize on it and change your fortune.

Always remember to curb your excess spending. During a financial crisis, the worst thing you can do is to continue to spend your money on meaningless things. Instead, save your money and use it to set your recovery plan into motion.