Will Your Income Keep Up?
Financial stress is a familiar concern for many Americans—covering daily expenses, managing bills, and planning for the future can feel overwhelming. But retirement shifts the equation. One of the most pressing financial risks for retirees? Inflation.
According to recent Allianz Life surveys, inflation remains a top worry for individuals approaching or already in retirement. In one study, 32% of respondents reported feeling “panicked” or “very worried” about how inflation could affect their long-term financial security.
Even though inflation awareness has grown, many still overlook its long-term consequences. In the same study, 64% admitted they had no formal strategy to manage it. Among those who did, over half said their only approach was simply “spending less.” Meanwhile, research from the Society of Actuaries found that nearly half of retirees—and more than one in four pre-retirees—fail to account for inflation in their retirement income plans.
As life expectancy increases and retirement lasts longer, inflation becomes a powerful force that can erode financial stability. Here’s why it’s essential to factor inflation into every retirement strategy.
What Are Some Other Findings?
The survey highlighted several key concerns about inflation’s impact on retirees’ lives—from healthcare costs and travel to everyday essentials, as shown below.
| Retiree Concern | % Reporting as Significant |
|---|---|
| Healthcare costs | 78% |
| Long-term care expenses | 61% |
| Travel and leisure | 54% |
| Everyday essentials (food, gas, utilities) | 72% |
| Housing | 39% |
| Gifts/charitable giving | 18% |
While the average respondent expected an annual cost-of-living increase of 4.4%, historical data from Allianz Life over the last 20 years shows inflation has averaged closer to 2.15% annually. Still, recent years—especially 2022 through 2024—have shown how quickly higher inflation can reduce purchasing power.
| Period | Average Annual Inflation |
|---|---|
| 2000–2020 | 2.15% |
| 2021 | 4.7% |
| 2022 | 8.0% |
| 2023 | 4.1% |
| 2024 | 3.2% |
Although inflation stayed relatively low between 2000 and 2020, the recent surge reminded everyone how unpredictable it can be. Complicating matters, the Consumer Price Index (CPI) doesn’t always reflect the full cost increases in key areas like food and energy—categories that tend to impact retirees most.
The bottom line: even modest inflation can gradually weaken your income’s value. Without a plan to address it, your retirement dollars may not stretch as far as you need.
Potential Long-Term Effects of Inflation on Purchasing Power
Over time, inflation adds up—and its cumulative impact can be significant. These examples help put it into perspective:
- Between 1986 and 2016, the median price of a new home increased 118%, rising from $86,600 to $189,051.
- From 1984 to 2015, medical care costs rose by 322%.
- Prescription drug prices climbed 338% during the same period.
Even government-backed income sources like Social Security aren’t immune. In 2016, the average monthly Social Security benefit was $1,341. Over a 20-year retirement, even 2%–3% annual inflation can cause everyday expenses to outpace fixed benefits.
| Year | Buying Power @ 2% Inflation | Buying Power @ 3% Inflation |
|---|---|---|
| 0 | $100.00 | $100.00 |
| 5 | $90.39 | $86.26 |
| 10 | $81.71 | $74.41 |
| 15 | $73.97 | $64.19 |
| 20 | $66.99 | $55.45 |
| 25 | $60.78 | $47.87 |
| 30 | $55.18 | $41.20 |
Don’t Forget About Healthcare Inflation
Healthcare costs tend to outpace general inflation. According to HealthView Services, medical expenses in retirement are expected to rise by 5.5% annually—more than double the standard inflation rate. That means retirees need to account for escalating medical costs as they age.
For instance, a 65-year-old couple retiring in 2025 could spend over $13,000 on healthcare in their first year alone. By age 85, their annual healthcare costs may exceed $44,000. When you add in premiums, out-of-pocket expenses, dental care, and long-term services, total lifetime healthcare spending could surpass $700,000.
| Age | Projected Annual Healthcare Costs |
|---|---|
| 65 | $13,000 |
| 70 | $17,033 |
| 75 | $22,327 |
| 80 | $29,269 |
| 85 | $38,360 |
While estimates may vary depending on the source, both Fidelity and the Employee Benefit Research Institute (EBRI) confirm that healthcare costs are rising fast. Regardless of the exact numbers, the message is clear: your retirement plan should include strategies to handle healthcare inflation just as carefully as other financial risks.
Strategies to Counter Retirement Inflation
Inflation might be a gradual force, but your approach can be proactive. Consider these strategies to help your retirement income keep pace:
- Factor rising costs into your retirement income projections
- Build a mix of income sources—combine fixed income with inflation-adjusted options
- Explore products with inflation protection or growth potential, such as certain annuities or Treasury Inflation-Protected Securities (TIPS)
- Review your plan regularly and adjust as needed to stay on track
Don’t let inflation quietly erode your retirement lifestyle. A well-prepared strategy can help safeguard your income and maintain your purchasing power for the long haul.
Further Reading & Sources
- Society of Actuaries: Post-Retirement Risk Research — Latest survey data on retiree confidence, inflation concerns, and risk management.
- Employee Benefit Research Institute (EBRI): Retirement Confidence Survey 2024 — Annual findings on retiree preparedness and income worries.
- Fidelity Retiree Health Care Cost Estimate — Up-to-date projections for average retiree healthcare spending.
- Genworth Cost of Care Survey 2023 — National averages for nursing home, assisted living, and home care costs.
- Social Security Administration: Cost-of-Living Adjustments (COLA) — Annual COLA changes and historical Social Security adjustments.
- U.S. Bureau of Labor Statistics: Consumer Price Index (CPI) — Official inflation data and trends from 2000 to present.
- AARP Rx Price Watch Report — Annual data on prescription drug price increases versus general inflation.
This page is for educational purposes and does not constitute investment advice.
Looking for Guidance?
If you’re ready to take the next step in planning your retirement with confidence, Foxcove Financial is here to help. We’ll walk you through your options, answer your questions, and help you evaluate solutions that align with your long-term goals. We specialize in insured strategies designed to protect and grow your retirement income. Call us at 609.807.8502 or schedule an appointment.