Investing Retirement Planning 3 Ways to Plan for Inflation in Retirement Practical steps to protect your retirement income By Dana Anspach Dana Anspach Twitter Dana Anspach is a Certified Financial Planner and an expert on investing and retirement planning. She is the founder and CEO of Sensible Money, a fee-only financial planning and investment firm. learn about our editorial policies Updated on April 6, 2022 Reviewed by Andy Smith Reviewed by Andy Smith Andy Smith is a Certified Financial Planner (CFP), licensed realtor and educator with over 35 years of diverse financial management experience. He is an expert on personal finance, corporate finance and real estate and has assisted thousands of clients in meeting their financial goals over his career. learn about our financial review board Fact checked by Emily Ernsberger Fact checked by Emily Ernsberger Twitter Emily Ernsberger is a fact-checker and award-winning former newspaper reporter with experience covering local government and court cases. She also served as an editor for a weekly print publication. Her stint as a legal assistant at a law firm equipped her to track down legal, policy and financial information. learn about our editorial policies In This Article View All In This Article Your Life Phase Your Income Level 1. Get the Most from your Social Security Choose Investments That Rise With inflation Go Green, and Grow a Garden Bonus: Insurance Photo: Musketeer / DigitalVision / Getty Images Upcoming retirees may be too worried about inflation. Financial planners and online advice articles often say you’ll need an ever-increasing income to maintain your purchasing power. But studies of real retiree spending patterns tell a different story. Key Takeaways Spending during retirement starts high, drops off, and gets high again in your 80s when you're spending more on healthcare. Inflation may affect the third phase of your retirement.Retirees with higher incomes can weather inflation better than those who are living on less money.Make sure you get the most from Social Security to protect your future retirement income against inflation. Choose investments that hedge against inflation, and find ways to save at home. Your Life Phase Spending in retirement can be broken into three phases: the go-go years, the slow-go years, and the no-go years. Spending is high during early retirement (the go-go years). Retirees travel, shop, golf, fish, and actively enjoy their free time. Depending on their health, this phase spans ages 55 to 75. Then come the slow-go years. Whether due to health or simply age, you stay home more. You shop and travel less. Spending in inflation-adjusted terms has been shown to decrease during this phase, which spans the 70-to-85-year age range. Spending on healthcare replaces what used to be spent on entertainment items during the no-go years. Spending creeps back up in inflation-adjusted terms during this time, usually in your 80s and beyond. Your Income Level Your income level also determines the effect that inflation has. Higher-income retirees have room in their budgets to absorb price increases on essentials. Inflation doesn’t have a huge negative impact on this group. Increases in basics like food, energy, and medical care take a bigger bite out of the budgets of lower-income retirees. Assume that expenses will go up by 3% each year when you're projecting retirement success. This is in line with historical inflation rates. Then you can begin working on a “spend more now plan,” which may mean fewer income increases later. This type of planning can allow more spending in the go-go years. The goal is to find the balance between enjoying life now and holding enough financial reserves to account for later life, too. You can do three things to protect your future purchasing power. Get the Most From Your Social Security Social Security has automatic, built-in cost-of-living adjustments. It's a unique, life-long inflation-adjusted source of income, and smart planning can help you get more out of it. The cost-of-living adjustment (COLA) for 2022 is 5.9%. Note Almost one-third of retirees will rely on Social Security to provide 90% of their retirement income. More than half will rely on Social Security for more than 50% of their retirement income. One of the most important things you can do to protect yourself against rising prices is to make sure you get the most out of your Social Security benefits, for both you and your spouse, by choosing to defer SSI income until you are 70. Choose Investments That Rise With inflation Some investments and insurance products are more likely to keep pace with inflation than others. The trade-off may be less income now, but more income later. Some common choices are categorized into safe, medium, and aggressive levels of risk. Safe Investments Inflation indexed immediate annuities Medium-Risk Investments Inflation Protected Bond Funds Floating Rate Funds Aggressive Investments Dividend Paying Stock Index Funds Real Estate/Real Estate Funds What about gold? Despite the common belief that holding gold is a good way to hedge against inflation, it has been a better crisis hedge in the past than an inflation hedge. That means during times of slow steady inflation, gold hasn’t kept up, but it soars during times of crisis. Go Green, and Grow a Garden The best thing you can do is buy everything you might possibly need now if you really expect inflation to kick in. Make yourself as self-sufficient as possible. Stock up on durable goods now if you're worried that prices will rise quickly. Make your home as energy-efficient as possible, reducing your exposure to rising energy prices. Grow your own garden, and if you can, get livestock, or at least a few chickens. You'll be insulated from inflated food prices, and, if necessary, you'll have something to barter. Note Try to live in a community where you can walk, bike, or take public transportation for your daily needs. This reduces your dependence on potentially rising insurance, gas, and maintenance costs. Bonus: Insurance Some insurance products can help you protect against inflation as well. Remember that your healthcare costs will probably rise as you age. Prices become even higher when you add inflation to your healthcare costs. Long-term care insurance can help to protect your wealth from the high costs of care later in life. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Macrotrends. "U.S. Inflation Rate 1960-2021." Social Security Administration. "Social Security Announces 5.9 Percent Benefit Increase for 2022." Social Security Administration. "Fact Sheet," Page 1. Social Security Administration. "Retirement Benefits." Duke Fuqua School of Business. "Gold's Wild Ride."