Managing Inflation Risk in Retirement
Authored by: Chris Vidler, CFP®, CIMA®
At Concentric Wealth Partners, we believe successful retirement planning goes beyond simple savings goals. A key challenge faced by retirees is inflation — the silent erosion of purchasing power over time. Even modest annual inflation can significantly impact a retiree's ability to maintain their lifestyle across a multi-decade retirement.
The Long-Term Impact of Inflation
Inflation reduces the value of fixed income and cash holdings. Over time, even small inflation rates can have a compounding effect. For example, at a 3% annual inflation rate, the cost of living effectively doubles over 24 years. This means that retirees who need $100,000 today will need nearly $200,000 in the future just to maintain the same standard of living.
Illustrative Scenario: Consider a retiree who starts retirement at age 65 with an annual income need of $80,000. If inflation averages 3% per year, by age 75 they will need approximately $107,000 per year to maintain the same lifestyle — and by age 85, they will need nearly $144,000. Without adequate growth in their investment portfolio, their retirement savings can erode much faster than expected, potentially forcing tough choices about spending, downsizing, or re-entering the workforce.
Without proper planning, retirees relying solely on fixed pensions or conservative investments can see their purchasing power steadily decline, making it harder to cover essential expenses like healthcare, housing, and everyday needs. Additionally, healthcare costs historically rise faster than general inflation.
This is a hypothetical example for illustration purposes only. Actual investor results will vary.
There are multiple ways to help manage inflation risk in retirement:
1. Implement a Multi-Horizon Asset Allocation
At Concentric Wealth Partners, our investment philosophy integrates a multi-horizon framework — considering short-term (1-12 months), medium-term (1-10 years), and long-term (10-30 years) factors. By aligning a client’s portfolio with both near-term cash flow needs and long-term growth objectives, we create a strategy designed to weather inflation pressures over time.
Years 1-3: We typically recommend holding stable, liquid assets (e.g., cash, money markets) to help meet immediate income needs.
Years 4-10: An income ladder of bonds and fixed income helps provide consistent income.
Years 11+: A growth portfolio, including equities and other return-seeking assets, helps potentially outpace inflation and preserve purchasing power over the long term.
2. Leverage Tax-Efficient Strategies
Managing inflation isn't just about investment returns — it’s also about maximizing after-tax income. We employ tax-aware strategies such as Roth conversions, tax-loss harvesting, and strategic withdrawals from different account types to help ensure clients keep more of what they earn.
3. On-going Reviews & Adjustments
Inflation risk isn't static. That’s why we incorporate on-going portfolio reviews into every retirement plan. As economic conditions change, so do the challenges and opportunities within a retirement portfolio. On-going adjustments help ensure that the investment mix continues to align with both income needs and long-term growth goals.
Final Thoughts
Inflation risk can feel daunting, but with a carefully crafted, flexible plan, you can maintain financial confidence throughout retirement. At Concentric Wealth Partners, we’re committed to helping you build a resilient retirement strategy that adapts to economic realities and keeps your goals front and center.
If you’d like to review your current retirement strategy or discuss how we can help preserve your plan from inflation, connect with one of our advisors today.
The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Chris Vidler and not necessarily those of Raymond James.
Investing involves risk and you may incur a profit or loss regardless of strategy selected.
