Why Is Inflation so Scary for My Retirement Plan?

Renee Porter-Medley, CFP®, MPS-OD, Regional Planning Strategist Key Private Bank

Why Is Inflation so Scary for My Retirement Plan?

Why is the impact of inflation on a retirement plan a hot topic?

Over the past decade, investors experienced a best-case scenario of relatively low inflation and strong investment returns from both stocks and bonds. A retirement portfolio could maintain or even grow in value, enabling a retiree to comfortably sustain a withdrawal rate that met their spending needs. For many, worrying about inflation seemed to be a thing of the past.


That perspective has changed as rising inflation has become headline news and the potential for further pressure on price levels is coming from a number of sources. These include: (1) massive monetary stimulus; (2) reopening of the economy following the pandemic; (3) a surge in consumer spending as a result of rising net worth; and (4) inventory rebuilding by businesses.


As the prospects for higher inflation mount, many retirees and those planning for retirement are worried that their investment portfolios may fall short of expectations.

What Does History Tell Us?

An environment of high inflation and low returns may be uncommon, but its impact on investors can be severe, as our experience in the 1970s illustrates. In 1973, the inflation rate increased to 6%, and the S&P 500 dropped 15%. The inflation rate was 11% in 1974, and stocks lost 26% of their value. Interest rates were high from a historical perspective, resulting in fixed-rate investments generating more interest income for retirees. However, inflation consumed the increase in income. This experience from 50 years ago may be contributing to concerns that investments might not keep pace with inflation1 in the future.2


Average Annualized CPI

Average 10-Year Treasury Yield (%)

Average Annualized S&P Return (%)

































Swings in inflation rates such as those we have witnessed over the last several decades can have a significant impact on retirement security. Rising price levels cause you to spend more to maintain your standard of living, which often means having to take larger withdrawals from your portfolio.

Differences in the inflation rate of a few percentage points can add up over time, as the table below shows:

Annual Basic Living Expense

25 years later @ 2%

25 years later @ 4%

25 years later @ 6%


















How Can You Prepare for a Secure Retirement In the Coming Environment?

We believe that the environment in the coming decades will most likely resemble the period from the 1980s through the early 2000s. During these years, investors had either inflation or investment returns in their favor but not both at the same time.

During the planning process, quality financial teams will help you build confidence by incorporating various inflation scenarios and assumptions as well as prioritize lifestyle needs, wants, and wishes. For example, healthcare costs are assumed to increase at a higher inflation rate than most other spending. However, additional discretionary travel for many clients is often considered a wish that can be a flat expense or only grows at the average inflation rate.

In addition to examining each of these expense categories in your comprehensive financial plan, its important to review your withdrawal assumptions. Working together with your advisor, you can then decide if you need to be more conservative in spending.3

As part of our portfolio management process, we provide you with insights on asset allocation and investment strategies to help you hedge against or even outearn inflation over time. For example, investing in Treasury Inflation-Protected Securities and increasing the allocation to equities are strategies that are often utilized to increase returns during periods of high inflation. Investing in real estate, infrastructure, and other types of alternative assets may also be applicable.4

It is also critical that your advisor helps you understand the difference between inflation and reflation and how each affects investments.

Inflation is what we blame when your dollar buys less today than it did yesterday, which can result in a reduced standard of living or purchasing power. On the other hand, reflation is good for wages, profits, and risk assets, as demand drives prices and profits higher. Both result in price increases, but for very different reasons and with very different outcomes for investors.

(June 2021 Key Questions)


And even in an environment of rising inflation, there are still reasons to consider fixed income as part of a diversified portfolio.

Given the ongoing uncertainty, we continue to maintain our disciplined approach to risk management and emphasize high-quality issuers who stand well-positioned to outperform over the long run, irrespective of fluctuations in interest rates in the short run.”

(March 2021 Key Questions)


You may also find opportunities as part of the regular review of your comprehensive financial plan. For example, the planning process can help you explore the impact of other financial decisions, such as when to claim your Social Security benefit.

“You may collect benefits at age 62,5 but waiting to claim as late as age 70 results in a larger benefit that is inflation adjusted. According to the Social Security Administration, the maximum monthly benefit at full retirement age in 2021 is $3,148; at age 70, it is $3,895. However, at age 62, it is only $2,324.”

Learn more about other decisions that impact retirement from our article “Retire and Stay Retired.”

Renee Porter-Medley Biopic

About Renee Porter-Medley

Renee is a highly experienced professional who works closely with the relationship team to understand a client’s situation and goals and develop an integrated, customized set of strategies to help them reach their objectives. She is also well-versed in sophisticated planning strategies to help clients address complex issues. Renee is a Key Private Bank Wealth Institute member, which provides commentary and advice on current topics and issues that impact our clients’ wealth management planning.

Renee is a Certified Financial Planner® professional who completed her course work through the College for Financial Planning and attended the Financial Planning Association Residency Program at DePaul University. She taught other professionals as an Instructor for the Certified Financial Planner CertificationTM program offered by Florida Gulf Coast University. Renee earned a Bachelor of Arts in International Studies with a major in Finance from the University of Michigan and a Master of Professional Studies in Organization Development from Penn State University.









The Key Wealth Institute is comprised of a collection of financial professionals representing Key entities including Key Private Bank, KeyBank Institutional Advisors, and Key Investment Services.

Any opinions, projections, or recommendations contained herein are subject to change without notice and are not intended as individual investment advice.

This material is presented for informational purposes only and should not be construed as individual tax or financial advice.

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