Keeping Your Retirement Income on Pace With Future Inflation

James K. Ault • October 11, 2022

Share this article

Keeping your retirement income on pace with future inflation can be a significant piece to your overall financial future. Without a strategy in place, you may find your purchasing power diminishing over time – and in some cases, it could be necessary to make tough decisions regarding what, and what not, to purchase.

Forgoing a trip to Europe might be difficult – especially if it has been a long-term dream. But having to determine whether to spend your recourses on food OR healthcare – but not both – can be even more difficult. That’s why it is essential to know that your retirement income will rise over time.

What Inflation Looks Like

Inflation  is defined as the “decline in purchasing power over a period of time.” This relates to the increase of an average price level of goods and services, and in turn, it means that a unit of currency will effectively buy less than it did in the past.

Typically, these rising prices occur gradually, so it can be difficult to notice just how much inflation is impacting your spending power on a year to year basis. But when it is tracked over a longer time period, it becomes easier to see just how much of an impact it makes.

Looking at it another way, if your income does not go up, you will be able to purchase less over a period of time. As an example, if you had 9 cents to spend:

  • In 1916, it would purchase a quart of milk
  • In 1966, it would purchase just one small glass of milk
  • In 2017, it would only be able to purchase 7 tablespoons of milk

Many people do not consider the effect that inflation can have on their retirement income. But regardless of whether you’re working or retired, the price of goods and services that you need and want will still typically continue to rise. Therefore, your income needs to rise, too!

It is important to keep in mind that, just like the stock market, “averages” are just exactly that – averages. This means that year over year, inflation could be significantly higher (or lower), so this needs to also be considered. (Notice in the chart below the difference between just 2020 average prices as compared to average prices in mid-2022).

Average Prices in 2000 versus 2022

Keeping Your Income Where You Need It to Be

Regardless of how much money you have saved, a secure retirement has more to do with the generation of income that lasts as long as you need it to. One way to do this is through an annuity.

Annuities can pay out income for either a pre-set time frame, such as 10 or 20 years, or for the remainder of your lifetime, no matter how long that is. These financial vehicles can also be designed to increase the amount of income that you receive over time. For instance, cost of living riders adjust the dollar amount of cash flow that is paid out by an annuity each year.

There are also inflation-protected annuities available in the marketplace. These annuities have their payments indexed to the rate of inflation in the economy. It is important to note that these annuities may have an upper limit, or “cap” on the amount of increase they provide on an annual basis.

Other options for increasing income in retirement could include:

  • Increasing the amount or percentage of portfolio drawdown(s)
  • Social Security cost of living adjustments

Will You Have a Secure – and Rising – Income in the Future?

Because creating an income plan that not only includes a lifetime stream of cash flow, but also one that rises over time, can require many “moving parts,” it is recommended that you discuss your situation and objectives with a retirement income specialist.

< Older Post

 Newer Post >

Recent Posts

Man in blazer opening envelope at a desk, looking at papers, smiling. Bookshelf, laptop, and plant in the background.

Filling in The Gaps in Your Retirement Income

By James K. Ault • December 6, 2022
A retirement income gap represents a shortfall between the income you will need to pay your essential (and possibly some non-essential) expenses in retirement and the amount that you actually have coming in. While you may be able to sustain this pattern for some period of time, you will eventually run out of money. Then […] The post Filling in The Gaps in Your Retirement Income appeared first on James K. Ault – Sooner Retirement.
Couple reviewing paperwork together while using a laptop on a couch in a home.

Why Consider a Reverse Rollover?

By James K. Ault • November 29, 2022
If you have ever left an employer where you had a retirement savings account, you may have “rolled” those funds into a personal IRA. Doing so can allow you to take control over your money, as well as open up a much wider array of investment opportunities. But what about doing the opposite? Many investors […] The post Why Consider a Reverse Rollover? appeared first on James K. Ault – Sooner Retirement.
Older couple reviewing paperwork, laptop, coffee cup, concerned expressions.

What higher interest rates could mean for annuities

By James K. Ault • November 22, 2022
As interest rates have continued to rise, they are having a tremendous impact on home mortgages and fixed income investments. In the case of the former, rising rates can mean bigger house payments. In the latter, though, you could generate more growth and/or income. But what could higher interest rates mean for annuities? The answer […] The post What higher interest rates could mean for annuities appeared first on James K. Ault – Sooner Retirement.
An older Black man with a gray beard, writing on paper and using a calculator at a table.

How much income will you receive from an annuity?

By James K. Ault • November 15, 2022
There are many different types of annuities available in the marketplace today. These include immediate and deferred, as well as fixed, indexed, and variable. When the payments begin, and how the return is calculated, can depend on these variations. For instance, immediate annuities start to pay out income right away (or within 12 months of […] The post How much income will you receive from an annuity? appeared first on James K. Ault – Sooner Retirement.
Woman with glasses reviews bills at a table with a laptop, phone, and coffee mug.

Just how high could income taxes rise?

By James K. Ault • October 18, 2022
Nobody enjoys paying taxes. This is one of the biggest reasons why pre-tax contributions and tax-deferred growth make traditional retirement accounts so appealing – at least during your working years. But at some point, that money will be taxable upon withdrawal. With that in mind, it is important for you to have a plan in […] The post Just how high could income taxes rise? appeared first on James K. Ault – Sooner Retirement.
Man with gray hair sits on couch, looking at laptop, holding notebook and pen. Coffee on table.

Addressing The 3 Most Pressing Retirement Concerns

By James K. Ault • October 4, 2022
Retirement planning can pose a number of challenges. But even if you have successfully reached retirement, there are new hurdles that you may face… three in particular that can have devastating consequences if they are not planned for. With that in mind, addressing the 3 most pressing retirement concerns should be a key component of […] The post Addressing The 3 Most Pressing Retirement Concerns appeared first on James K. Ault – Sooner Retirement.
Smiling older woman with gray hair reads papers at a desk in a home office.

3 key steps to converting savings into a lifetime retirement income stream

By James K. Ault • July 20, 2022
Until just a few decades ago, many retirees could count on retirement income from three primary sources. These included an employer-sponsored defined benefit pension plan, Social Security, and personal savings or investments. Today, however, many companies have done away with the traditional “pension” plan, replacing it with defined contribution plans such as the 401(k). But, while these […] The post 3 key steps to converting savings into a lifetime retirement income stream appeared first on James K. Ault – Sooner Retirement.
Senior couple in kitchen: man kissing woman's cheek, holding wine glasses, preparing food.

What to do with your 401(k) when you retire?

By James K. Ault • July 12, 2022
Knowing that you can count on a set amount of income to arrive throughout your retirement is a key factor in how – and how well – you will live. In many cases, the largest amount of savings that a retiree has is the funds inside of an employer-sponsored retirement program like a 401(k) – […] The post What to do with your 401(k) when you retire? appeared first on James K. Ault – Sooner Retirement.
Woman with curly gray hair, at a conference table, gazing out a window, hand to her chin, laptop open.

What to consider before a Roth IRA conversion

By James K. Ault • July 6, 2022
Roth IRA accounts can offer you a number of benefits – including tax-free income in retirement. This can put you at a significant advantage, given that tax rates are expected to rise in the future – and nobody knows how high they will go! Unfortunately, not everyone qualifies for a Roth IRA, though. So, it […] The post What to consider before a Roth IRA conversion appeared first on James K. Ault – Sooner Retirement.