How To Beat Inflation in Retirement

How To Beat Inflation in Retirement | 10 Ideas for Investors To Try

Having enough money saved up to allow you to not only afford early retirement but also cover all your monthly expenses is a dream everyone shares.

However, the risk of having a huge chunk of your retirement savings eroded away by rising inflation and interest rates is a very real one. Unless you start making plans to secure future personal finance right now you may have to sit and watch as your retirement account loses its purchasing power.

Proper financial planning involves finding an investment strategy that will allow you to beat inflation and maintain a healthy retirement account balance.

In this article, we will look at some of the tactics that are promoted by many experienced financial advisors to provide inflation protection for retirees.

Key Takeaways

  • The effect of inflation on retirement funds

  • Link between a 401(k) and inflation

  • 10 tips to help investors to beat inflation

What Are Inflation and Hyper-Inflation

The first step to safeguarding your investment is to understand what inflation is. Furthermore, the simplest definition is that it is the continued devaluation of a currency which is accompanied by the rise in the cost of basic goods and services.

When inflation occurs, the purchasing power of the money you are holding is negatively affected, meaning you will be able to buy less today than you could have yesterday. This indirect relationship between goods and money makes it disadvantageous to keep money in certain types of investments or accounts.

In its most extreme form, the rate of inflation becomes so high that an entire savings account can lose value in a matter of days. At this stage, it will now be called hyperinflation.

Ordinary inflation is typically around 3% per year. However, with hyperinflation, it can be as high as 1,000%, which will effectively completely destroy a currency.

Extreme cases of inflation are caused by a combination of two things. Firstly, currency supply has to increase without the corresponding increase in the growth of the economy. The other is an increase in the demand for basic goods and services which is far greater than the supply.

Causes of Inflation

Three basic theories are accepted as the possible causes of inflation, which are:

  • The demand-pull theory is based on the increase in demand for goods which results in the increase of their price as suppliers battle to prevent the depletion of their inventory

  • When production costs increase, companies will push up prices as they try to cover the costs of production in what is called the cost-push theory

  • The last theory has to do with the oversupply of money which results in a decrease in its value and an increase in prices

How Does Rising Inflation Affect Your Retirement Savings?

Rising Inflation Affect Your Retirement Savings

When everyone makes plans for their retirement, they usually have a fixed income that they plan to give themselves annually, which will determine how much money they need to save up to sustain them for, let’s say, 20 years.

However, when inflation rises, the savings account will no longer be enough to cover the set retirement income that one wishes to make use of, which can be the cause of a lot of stress for many people.

One way to guarantee your financial future in such cases is to either save such a large amount of money that even if prices go over the average inflation rate you will be safe or to diversify your retirement accounts and start making plans right now regarding how to beat inflation in retirement.

The first option is impossible for most people living on fixed incomes due to the rising prices of cost of living that we have to endure. Most people are already battling to make ends meet let alone find a way to save money against the possibility of high inflation rates.

That is where the tips in this article will come into play as a way to safeguard your financial future regardless of what the annual inflation rate will be 10 years from now.

Does Inflation Affect a 401(k)?

Most retirement plans are based on a 401(k) system, which is understandable because of the tax benefits the system provides, as well as the attractive employer contributions one can receive.

However, the downside of a 401(k) is that it is very vulnerable to inflation rates. In most cases, the only protection you will get for the funds in your 401(k) will come from the government if it decides to act against inflation.

This is why it is necessary to take measures as an individual to protect your own retirement savings. While many people still prefer to keep the bulk of their savings in a 401(k), there are a lot of benefits to diversifying at least 5% to 10% of your account to other things, some of which we will discuss below.

Use These Weapons To Fight Inflation

If you are worried about how you will retain the purchasing power of your retirement savings accounts in the face of rising prices and inflation rates, you have come to the right place.

Try the following tips as part of your retirement plans:

  1. Keep as Little Cash as Possible

The more money you keep in the form of cash, the more sleepless nights you will have to worry about the inflation rate.

Obviously, you will need to have access to a ready supply of cash as an emergency fund or for making large purchases. However, you should try to limit this as much as possible, and especially avoid holding large amounts of cash as an investment option.

The ideal amount for emergencies is just enough money to cover monthly expenses for about three to six months. Anything more than that is too much risk and should be diverted toward more sustainable investments.

keep little cash

  1. Diversify Your Portfolio

One of the best ways to keep your retirement savings safe is by diversifying your portfolio. This means taking a part of your 401(k) or traditional IRA and using it to fund alternative investments.

The following are some of the most common investments that are protected from the effects of the inflation rate:


Commodities are well known for their ability to not only keep pace with inflation but actually perform well when inflation rises. Some great options to invest in include tried and tested commodities, such as gold, silver, or oil and natural gas.

However, bear in mind that the prices of commodities do fluctuate in response to global demand. This is why you should seek the advice of qualified financial advisors to help decide how much of your retirement fund to invest in commodities.

Stock market

Equity markets have historically produced great returns over time regardless of the inflation rate. This means having a sizeable amount of money invested in the stock market will be beneficial in the long run.

Over the last 10 years, while the United States has witnessed inflation rates of around 3%, those who have had their money secured in the stock market, for example, the S&P 500 Index, have enjoyed investment returns of up to 10%.

The downside of playing the stock market is that in the short-term, sudden fluctuations can cause you a lot of stress. One tactic you can use when investing in the stock market is to focus on businesses that tend to perform well in times of inflation.

Protected Bonds

With the full might of the federal reserve bank behind them, government bonds offer a level of inflation protection like no other form of investment. You can rest assured that whatever moves the government makes to combat yearly inflation rates will benefit your fixed-income bonds.

  1. Plan Ahead for Healthcare

As you grow older, the average cost of your healthcare will increase. If you fail to plan accordingly, then healthcare can be the one thing that will deplete your retirement savings very quickly.

Do not make the common mistake of overlooking the cost of healthcare when planning for retirement. The following are some of the things you can do to protect your finances:

Open a health savings account

A separate health savings account is a great option to have that will provide you with the required funds to pay for doctor’s visits, check-ups, or any health emergencies that may come up. This way, you will not have to take any funds from your main retirement savings.

Purchase insurance for long-term care

Some health problems require long-term care, which is something difficult to save up for because the costs can be very high. This is why you need to consider paying for insurance that will cover such costs in return for fixed monthly premiums.

Go over your medical coverage

Different medical care providers have different policies regarding what type of coverage they are willing to provide for older Americans. To be on the safe side, do not assume anything, but rather carefully go over the entire health policy and address whatever potential issues you come across.

  1. Cut Back on Spending

It goes without saying that frivolous spending will not be good for your long-term savings. The best time to start saving as much as you can is right now, while you still have a fixed income to rely on.

Set aside enough cash to cover your monthly expenses and try to save as much as you can from the remainder. Spoiling yourself every once in a while is not a bad thing, but keep it under control by always reminding yourself of the need to stick to your retirement plan.

  1. Reduce Debt Load

High-interest rates can quickly turn a fairly manageable debt into a huge burden. One thing you definitely want to avoid is having to pay off your debt straight from your retirement savings after it has spent years increasing due to the interest rates.

Some of the most crippling forms of debt include mortgages and credit card debt, which have adjustable interest rates that respond to inflation. The ideal scenario will be to make sure that you have zero debt by the time you choose to retire.

  1. Find a Source of Fixed Income

Just because you have retired does not mean you can no longer work to find an alternate retirement income that can cover all your monthly expenses. This is the best way to ensure that the money you save for retirement will be used to achieve some of the life goals you were unable to do before.

You can even work part-time if you no longer feel like spending all your time at work. A lot of people struggle to adjust to suddenly being unemployed. Getting a part-time job or a paying hobby is one way to avoid having to make too many living adjustments at the same time.

  1. Real Estate Can Provide Retirement Income

Real Estate Can Provide Retirement Income

Nothing is better for providing you with financial security than having good real estate investments to fall back on. Real estate is one of the most reliable industries to invest in that offers adequate protection against inflation.

The only thing you have to worry about, besides the periodic rise and fall of the property market, is paying your real estate tax. Inflation usually has a direct impact on the taxes that you will be charged for your properties, although these are not enough to make investing in real estate a bad thing.

Another advantage of real estate is that you will be able to rely on the monthly payments that you will receive from tenants who are renting your property. A higher inflation rate will mean higher prices for rent, which means you will be protected from the rising costs of living.

  1. Delaying Social Security Payments

Social security benefits are still a very important part of the lives of everyday Americans. More than half of retirees depend on social security to cover the bulk of their retirement income.

However, as much as you will be eager to start receiving your social security payments, you can choose to delay it for as long as possible.

If you are still able to work and receive another source of income, why not wait until you are closer to the age of 70 before you ask for your social security? By this time, it would have increased to a much larger amount.

  1. Invest in Cryptocurrency

One of the more radical and controversial investments you can attempt is going into the cryptocurrency industry.

In as much as crypto has taken a beating in recent months, there is no denying that once the industry stabilizes and implements a lot more regulation in its dealings, it is definitely going to be a big part of the future.

Soon, people will be able to pay for almost any goods and services using crypto, from basic goods to credit card debt and lots of other things.

The buying power of cryptocurrencies, such as Bitcoin, will only improve with time, so if you are looking for alternative investments other than mutual funds and stocks, you can consider venturing into the digital assets industry.

  1. Be Patient

Patience is the key to seeing through your long-term retirement plans, especially if you are still a young investor with many years to go until you reach retirement age.

We understand that there are a lot of things you may be eager to do now, but saving for retirement should be one of the most important things you are thinking about.

By making a few cost-of-living adjustments, you will be surprised at how much money you will be able to save by the time you reach retirement age.

Final Thoughts

With a proper retirement strategy, the fear of the rising inflation rate does not have to hang over you like a cloud. With so many tools at your disposal, such as diversifying your portfolio and trying your hand at real estate, the answer to the question “How to beat inflation in retirement?” should be an easy one.

Rate this post
Tim Schmidt


Tim Schmidt is an Entrepreneur who has covered retirement investing since 2012. He started IRA Investing to share his expertise in using his Self-Directed IRA for alternative investments. His views on retirement investing have been highlighted in USA Today, Business Insider, Tech Times, and more. He invested with Goldco.