Inflation may be the biggest retirement expense you never put in your budget.
You don't get an inflation bill every month. Instead, groceries get more expensive. Insurance premiums creep higher. Property taxes rise. Healthcare costs more. Then one day you wonder why your retirement paycheck doesn't go nearly as far as it used to.
Here's the math.
If your lifestyle costs $100,000 today, here's approximately what you'll need in 20 years just to maintain your lifestyle.
2% inflation: $148,600
3% inflation: $180,600
4% inflation: $219,100
These figures are hypothetical illustrations that assume a constant annual inflation rate. They are not predictions.
At 4% inflation, your expenses could more than double over 20 years.
So how do you inflation-proof a retirement that could last 25 or 30 years?
1. Don't Retire From Equity Investments
Retirement doesn't mean your entire portfolio should retire too.
If you're 65, some of your money may not be spent until you're 85 or 90. Keeping everything in cash may feel safe, but inflation can quietly destroy purchasing power.
Consider keeping an appropriate portion invested for long-term growth. Some of your money may still need to play offense. Equity investments involve risk, including possible loss of principal, and the right mix depends on your goals, time horizon, and risk tolerance.
2. Build Yourself a Retirement Pay Raise
Your retirement income shouldn't necessarily stay flat for 25 years.
Social Security has cost-of-living adjustments, but many pensions and other income sources don't.
Many retirees look to investments that may provide opportunities for income and growth over time, such as stocks, dividend growers, and Treasury Inflation-Protected Securities (TIPS). Each carries its own risks, and dividends are not guaranteed.
Your retirement paycheck at 80 probably needs to be larger than it was at 65. Also, consider that many retirees spend more in the first five to ten years of retirement, and spending may slow depending on health and mobility.
3. Downsize the House
That 5,000-square-foot house may have been perfect when three kids lived at home.
Do you still need it?
A large home means property taxes, homeowner's insurance, utilities, landscaping, repairs, and maintenance. Many of those expenses increase with inflation.
Downsizing may free up equity while reducing your monthly overhead, though selling a home can carry tax and transaction costs.
A smaller house could mean a bigger retirement lifestyle.
4. Have a Long-Term-Care Plan
Don't simply cross your fingers and hope you'll never need care.
A private nursing-home room already has a national median cost of about $130,000 annually1. Costs vary widely by state and type of care. Imagine what that could cost 15 or 20 years from now.
Decide whether you'll self-fund, purchase long-term-care insurance, consider a hybrid life/LTC policy, or use some combination. This is something we're happy to discuss with you at Exit Wealth®.
The important question is simple. If one of us needs care for three years, where does the money come from?
5. Lock Down Your Fixed Expenses
You can't control inflation, but you can control how much of your budget is exposed to it.
Pay off high-interest and variable-rate debt. Decide whether entering retirement without a mortgage makes sense. Shop Medicare and prescription coverage annually. Review your homeowner's and auto insurance instead of automatically renewing.
Cutting $500 of recurring monthly expenses is $6,000 every year you no longer need your portfolio to produce.
6. Consider Getting the Kids Off Payroll
Sometimes inflation isn't the problem.
It's your 28-year-old.
Cellphone plans. Car insurance. Streaming services. Rent. Vacations. Credit cards. Maybe even a monthly allowance that somehow never ended.
Before retirement, sit down with your adult children and establish when the family payroll ends.
Helping your child with a first-home down payment is one thing. Subsidizing their lifestyle indefinitely is another.
Give them time to prepare, but put a date on financial independence.
The Bottom Line
You can't stop inflation. But you can build a retirement that is prepared for it.
Plan for higher expenses, keep some growth in your portfolio, and lower the costs you can control.
Because retirement isn't about having enough money on the day you retire.
It's about having enough purchasing power for the rest of your life.
CFP®, CRPC®, CRPS®, AWMA®, AAMS®, CMFC®, CEPA®
CEO & Managing Partner · Exit Wealth®
SOURCES
- CareScout (a Genworth company), 2025 Cost of Care Survey: carescout.com/cost-of-care.html
All opinions expressed in this newsletter are for general informational purposes and constitute the judgment of the author(s) as of the date of the newsletter. The opinions and views expressed by the author are personal and based on economic or market conditions at the time of publication. Actual economic or market events may turn out differently than anticipated. Nothing in this material is intended to serve as personalized investment, tax, or insurance advice. These opinions are subject to change without notice and are not intended to provide specific advice or recommendations for any individual.
The material has been gathered from sources believed to be reliable, however Exit Wealth® cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. As always, please remember investing involves risk and possible loss of principal capital and past performance does not guarantee future returns; please seek advice from a licensed professional.
