Retirement Planning: Keeping Spending on Track During Inflation
Over the past couple of years, many retirees have noticed their budgets stretching uncomfortably thin. A 2024 report from Boston College’s Center for Retirement Research found that about 23 percent of older households increased their withdrawals between 2021 and 2023 to keep up with higher living costs, often dipping deeper into savings than planned. The study warns that if inflation stays elevated, middle-income retirees risk seeing a meaningful erosion of their financial wealth in the years ahead. (Source: Center for Retirement Research)
That’s the real impact of inflation. Workers can sometimes offset it with a raise or business income, but retirees rarely have that option. Social Security provides cost-of-living adjustments, but it doesn’t fully cover the rising cost of food, gas, or healthcare. And when the grocery bill doubles while your pension stays the same, the gap becomes very clear.
The Cost of Retirement Is Fluctuating
Planning for retirement isn’t just about picking a number and sticking with it. Costs change, and they often rise faster than expected. According to Fidelity’s 2022 Retiree Health Care Cost Estimate, a 65-year-old couple retiring today may need about $315,000 in after-tax savings just for medical expenses in retirement. When you add housing repairs, utility increases, and groceries, and your cost picture changes quickly. (Source: Business Wire)
BLS data shows egg prices surged nearly 60 percent in 2022 before falling back about 24 percent in 2023, a reminder of how volatile necessities can be. Those spikes weigh even heavier once income is fixed. That’s why building a reasonable spending buffer, rather than assuming costs will stay steady, is critical. (Source: U.S. Bureau of Labor Statistics)
Investments can also help keep pace. Historically, U.S. stocks have returned about 7 percent annually after inflation over the long term, according to Morningstar. Inflation-linked options like TIPS and I-Bonds provide built-in protection, and real estate or REITs often rise alongside living costs. No single asset eliminates the risk, but a balanced mix helps preserve purchasing power.
The 4 Percent Rule isn’t Built for Today’s Economy
For years, the 4 percent rule has been a go-to guideline in retirement planning. The idea is straightforward: take out 4 percent of your savings in the first year, then adjust that dollar amount each year for inflation. If you’ve saved $500,000, that works out to about $20,000 in year one, with small increases over time. The rule was designed to give retirees confidence their money could last around three decades.
But the financial world has changed since the rule was created. Back then, bonds paid higher interest, stocks were less expensive, and inflation was more stable. Today, lower yields, pricier markets, and more unpredictable inflation make a rigid 4 percent withdrawal less reliable. Recent research from Morningstar suggests that starting closer to 3.7 percent is a safer bet in today’s conditions. That difference may not sound huge, but when stretched over the length of retirement, it can be the line between steady security and falling short.
Flexibility Creates Breathing Room
Rules are useful, but flexibility is what makes a plan sustainable. According to financial planner Michael Kitces, trimming spending by just 1–2 percent later in retirement can increase safe withdrawal rates by as much as 0.75 percent. That’s meaningful breathing room without drastic cuts.
Many retirees already adjust naturally. Travel and dining out tend to slow down, while healthcare spending rises. Planning ahead for those shifts helps you stay in control rather than reacting under pressure.
Fees are another area where small changes add up. A 1 percent annual fee might seem small, but Kitces and Jonathan Pye found that such costs can shave 0.4-0.5 percent off the safe withdrawal rate. On a big portfolio, that’s several thousands lost a year. Choosing lower-cost funds and transparent advice keeps more of your money working for you. (Source: Kitches.com)
A Plan That Stays Reliable
Inflation is top of mind for retirees, and surveys confirm it. The Society of Actuaries’ 2024 survey found that majority of the retirees worked with an advisor to safeguard savings, with rising costs listed as the number one concern. It is also reported that 73 percent of near-retirees and more than half of retirees ranked inflation as their biggest financial worry. (Sources: The Society of Actuaries Research Institute, National Institute on Retirement Security)
The data supports those concerns. Fixed withdrawal strategies, ones that don’t adapt to inflation or market swings, carry higher risk in today’s uncertain economic climate. Morningstar’s recent research shows that safe withdrawal rates have dropped, starting around 3.7% for balanced portfolios with a 30-year horizon and a high probability of success. Flexible withdrawal strategies, such as guardrail rules that adjust when markets are up or down, help reduce that risk.
A retirement plan isn’t something you set once and leave. It needs review, adjustment, and stress-testing.
Retirement Is About More Than Numbers
At its core, retirement planning isn’t about formulas, but about confidence. It’s about knowing you can cover your essentials without stress, still enjoy life, and protect the dignity you’ve worked hard to earn.
Inflation may never disappear, but it doesn’t have to control your future. At SLD Solutions, we help retirees and families design strategies that adapt to rising costs, protect income, and preserve peace of mind. We can also review your existing retirement plan, assess how it holds up against today’s conditions, and suggest improvements if there’s a better way forward.
Visit our website and book a free consultation with one of our specialists to start building a retirement plan designed to stand strong against inflation.
