Factoring Inflation into Your Retirement PLan

Are you currently saving for retirement? Have you calculated how much money you’ll need to maintain your standard of living in your later years? We recently had a client tell us that they can live off of $120,000 a year in retirement, so they only need to save $2,000,000 and then take 4% out as withdrawals. However, to ensure that your retirement savings will last throughout your retirement years, it’s crucial to factor inflation into your retirement plan. Failing to do so can have serious consequences, including running out of money in retirement and a lower standard of living during retirement.

To accurately determine the amount of income our client mentioned above needs to maintain their standard of living, we cannot ignore the impact of inflation. If we increase the estimated annual expenses of $120,000 by 3.25% over 20 years, we get $227,500 in additional withdrawals, creating an 11.4% withdrawal rate on the $2,000,000. Not factoring inflation risk into the amount to be saved could result in the client running out of money.

Inflation risk is when high prices or inflation erodes your purchasing power over time. Inflation shrinks what you can afford as things get more expensive and can lead to the depletion of your assets if you haven’t prepared properly.

Last year has been dubbed by several economists as the year of the Great Inflation. Prices on just about everything went up in 2023, reaching levels not seen in 40 years. The Consumer Price Index, one of the main measures of inflation, reached 9.1% in June of 2022. By comparison twenty years ago in April 2003, inflation was only 2.2%, according to the Bureau of Labor Statistics.

Inflation risk is a type of risk that is pervasive, far-reaching and impacts the entire economic system. Although inflation has leveled off from its high last year, it remains elevated. While it is nearly impossible to avoid the effects of inflation completely, there are actions we can take to reduce its impact.

As George Washington once mentioned, the best defense is a good offense. Below are some ways you can fight inflation.

• Invest in Inflation Protected Assets

Some assets, such as Treasury inflation-protected securities (TIPS), provide a return that is adjusted for inflation (1). TIPS are a type of Treasury security issued by the U.S. government. TIPS are indexed to inflation to protect investors from a decline in the purchasing power of their money. The principal value of TIPS rises as inflation rises, while the interest payment varies with the adjusted principal value of the bond. These assets can help savers maintain the purchasing power of your savings. The principal amount is protected since investors will never receive less than the originally invested principal.

• Diversify Your Investments

Consider diversifying your investments across different asset classes to spread risk and minimize losses from inflation. This could include investing in stocks, real estate, commodities, or foreign currencies to name a few. This approach can result in returns that keep pace with inflation and possibly exceed inflation, thereby increasing a saver’s purchasing power.

• Increase Savings Rate

You should aim to save more and increase your savings rate. This can help to offset the effects of inflation by increasing the amount of money available for investment. A great place to put savings is into a high yield savings account. The best online savings accounts offer higher interest rates vs brick and mortar banks while being a great place to park your money. Because online banks don’t have the expense of maintaining branches, they can offer high-interest savings paying many times higher than the national average of 0.39% (2). Many of the leading online high yield savings accounts currently offer savings rates above 4%.

• Reassess Your Budget & Savings Regularly

You should consider changes in spending to reduce inflation’s impact. Specifically, you can consider what’s driving inflation, and see if you are able to adjust what you’re spending money on, so it has less of an impact. Another option is to defer purchases of consumer goods that have been more affected by inflation. You should regularly reassess your savings goals and adjust your investments as needed to ensure you are on track to meet your financial goals.


We at Insight believe inflation will continue to cool off from the levels of 2022, but it may take several months to really feel the effects of the cool off. It is impossible to know for certain how long this will take.


Factoring inflation into a retirement plan is not a one-size-fits-all approach. The best plan will depend on multiple variables including cash flow comfortability, emergency reserves, and stage of life to name a few. But having a good, robust, and flexible personal financial plan can provide comfort when inflation feels high and financial markets seem uncertain so that savers can reach their financial and retirement goals.


Finally, it’s important to note that investing always carries some degree of risk, and savers should consult with a financial advisor, ideally one who is a CFP® Professional to help navigate any investment decisions. Additionally, while these strategies can help savers fight inflation, they may not be suitable for everyone and should be tailored to individual financial situations and goals.

Written by,

Alex Austin, CFP®

Alex Austin, CFP®

Alex is a comprehensive, fee-only financial planner. Alex made a career move into personal financial planning and investment management after 10 years in investment banking and corporate finance to find more meaning in his work and better match his personality and interests to his career. It’s worked out better than he could have imagined.

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Insight Wealth Strategies, LLC is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Insight Wealth Strategies, LLC and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Insight Wealth Strategies, LLC unless a client service agreement is in place.

Insight Wealth Strategies, LLC (IWS) and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.