If you find yourself gauging inflation by what you pay for groceries or at the pump, it’s probably no secret that prices are rising. At a penny more, the national gas price average of $2.84 a gallon in mid-April 2019, for example, may have been the smallest increase in the past eight weeks, but during that time period weekly price jumps ranged anywhere from a nickel to a quarter, according to AAA.1

Other than what you’ve been paying for groceries or at the pump, the costs for other goods and services is also rising. Excluding food and energy, the consumer price index was up 2.0% in March 2019 compared to a year ago, according to the Bureau of Labor Statistics.2

Over the short-term, rising prices may not seem to be too much of a stress on household budgets, particularly if you’ve also been experiencing modest increases in your paycheck. But inflation does erode purchasing power and can be a cause for alarm during retirement if you are drawing income from a fixed portfolio of assets.

Let’s face it. This is the first generation in which retirees may actually live longer than the years they’ve worked. Breakthroughs in medical science, technology, and healthful lifestyle changes can all add up in keeping us alive longer and enjoying a better quality of life than prior generations did.

On the financial side of things, this also means that any invested assets you might need to live on during retirement will need to keep pace with rising expenses as you age because of the compounding effects of inflation.

Research from David Blanchett, head of retirement research at Morningstar Investment Management, by way of a recent online article in Consumer Reports found that, for anyone within a few years of retirement, or already retired, a 1 or 2 percentage point rise in inflation can pose a risk to your financial security.

The research looked at a standard mix of 60% stocks and 40% bonds and assumed a 5% annual average return and a 4% average withdrawal rate each year. (We’re not fans of the 4% rule nor having this much of your retirement portfolio exposed to market risk, but wanted to provide this example as a way to illustrate what inflation can do over the long haul.)

The returns were adjusted later for inflation that averages 2% annually. Over the next 25 years, your odds of retirement success—that is, not running out of money—are 85%. But if inflation climbs just 1 percentage point higher, to 3%, your chances of success fall to 72%. And if inflation rises to 4%, your odds of success will fall to about 50-50.3

Perhaps, you remember the days of double-digit inflation of the late 1970s and early 1980s? We’re nowhere near that yet, but isn’t it prudent to consider a retirement strategy that safeguards your principal and provides an opportunity for some market upside? Let us know. Where here to help!


1 AAA. (2019, April 22) National Average Sees Smallest Weekly Increase In Eight Weeks [Press release]. Retrieved from: https://gasprices.aaa.com/national-average-sees-smallest-weekly-increase-in-eight-weeks/

2 Bureau of Labor Statistics (2019, April 10) Consumer Price Index Summary [Press release]. Retrieved from: https://www.bls.gov/news.release/cpi.nr0.htm

3 Wang, Penelope (2018, September 10) How to Protect Your Retirement Savings From Inflation. Consumer Reports. Retrieved from: https://www.consumerreports.org/retirement-planning/how-to-protect-your-retirement-savings-from-inflation/