10 Ways to Fight Inflation in Retirement

By Chris Duderstadt

February 4, 2022

10 Ways to Fight Inflation in Retirement

Key Points – 10 Ways to Fight Inflation in Retirement

  • Inflation Is Continuing Its Torrent Tear—How Can You Hedge It?
  • There Are Ways to Fight Inflation on Your Own, But a Couple of Components Involve the Assistance of a Financial Advisor
  • Remembering That Inflation Is a Normal Economic Situation, So Plan for It Accordingly
  • 8 Minutes to Read | 38 Minutes to Listen

How to Fight Inflation in Retirement

In recent months, we’ve all felt inflation’s impact at restaurants, gas stations, grocery stores, and so many other places. There’s no question that inflation has made its presence known, especially among retirees. It’s important to us that you to continue to live your one best financial life despite these inflationary issues, so we’ve compiled a list of ways for how to fight inflation.

1. Grow Your Money Faster Than the Inflation Rate

This may seem kind of tongue in cheek, but it’s true, is it not? We often hear from a client’s perspective that they come to us as with an initial expectation that we as advisor’s at least do something to help them financially. That something doesn’t have to be ground-shaking, but they want to at least see that we’re paying attention to what is going on in the markets and are supporting their financial goals.

Inflation can obviously be a hurdle in the path of people’s financial goals, but having a dynamic, forward-looking financial plan can help you clear it. It’s important to remember that inflation won’t cause you to go broke. Inflation will however make you live like you’re broke. So, oftentimes doing that little something to adjust your financial plan to counter inflation is all that’s needed.

We’ll get into those specific somethings shortly, but rest assured that we know it’s our responsibility as advisors to protect our clients’ assets as best as we can. It’s our goal to not only help you grow your money faster than the inflation rate, but give you clarity and confidence throughout your retirement.

“We constantly stress-test for inflation when we build retirement plans. Let’s look at historical periods when inflation was high and see what asset classes did well,” Modern Wealth Management CEO and Founder Dean Barber said. “We can also look at how long the inflationary periods lasted and what the new withdrawal rates needed to look like. You can determine an asset allocation that gives you the highest probability from a historical perspective to fight inflation.”

Next, we’ll cover a handful of simple things that you can do on your own. Those range from buying bonds, dividend-paying stock, and real estate to adjusting your withdrawal rate and harvesting gains.

2. Bonds (Most of the Time)

Typically, if we didn’t have bonds where they are right now, they would undoubtably be a top option for how to fight in inflation. You may have heard of the acronym TIPS, which stands for treasury-inflation protected securities. TIPS are U.S. treasury bonds that offer protection against inflation because of how they adapt to the performances of the Consumer Price Index.

“We run a certain percentage of portfolios in zero-to five-year TIPS,” Modern Wealth Management Lee’s Summit Office President Bud Kasper said. “The reason we do that is because there’s lower volatility on shorter maturities than there are on longer maturities. The beauty of TIPS is that when interest rates rise, they get to reset the amount of income that they pay out. Typically, if interest rates are rising, we know that bonds go down. But in TIPS, the amount of additional income acts as a buffer to the negative side of the equation and extends itself to give us a positive return.”

The moves (or lack thereof) that the Federal Reserve has been making lately hasn’t helped matters, though. We’ve recently seen the 10-year treasury move from 1.5% to 1.9% and back down to 1.76%. But there’s been no movement from the Federal Reserve yet. The Federal Reserve intends to start reducing its balance sheet, finish tapering, and do its first rate hike in the first quarter. The pressure is certainly on Federal Reserve Chairman Jerome Powell right now to do something, but when and what he’ll do remains to be seen.

3. Income

It all comes back to income when figuring out how to fight inflation. Dividend-paying stocks, utilities, and energy—these are just a few sectors are often dependable. Despite the market fluctuations we’ve seen so far in 2022, the S&P 500 and the NASDAQ both ended January in neutral territory.

Technology stocks might normally come to mind for how to fight inflation, but they continue to tumble. But with any dividend-paying stocks, always remember that investments are cyclical. Just because tech stocks are on the decline doesn’t mean that you should immediately jump ship and sell them. It means that this could be a good time to rebalance your portfolio.

This is the third significant fallback we’ve experienced in the past four years. The other two were in the fourth quarter of 2018 and then early 2020 with the beginning of the pandemic. Just like during those periods, many people are becoming overcome by fear because of the wild market volatility. Matt Kasper offered some very insightful advice in the latest Monthly Economic Update for how to combat that fear, and it’s a key message for how to fight inflation.

“We need to get back to the basics,” Matt said. “That includes doing the appropriate rebalancing, where we’re making sure covering future distributions and at the same time sustaining the appropriate risk level that’s going to keep us healthy in the long-term inside of retirement. I think that’s very critical for us to not lose sight of what we’re trying to accomplish long-term even though these jolts in the market feel very uncomfortable.”

4. Real Estate

Direct ownership of real estate or investing in real estate ETFs is our next suggestion for how to fight inflation. Dean has thought about this a lot lately, as he’s been renting a home in Florida with his wife during the winter months for the past four years.

Dean projects that he would have at the very least doubled his money by now if he would’ve purchased property in that area back then. The house he has been renting during his stay this winter is on the market now for $6 million. Five years ago, Dean says that it would’ve been in the ballpark of $2 million.

“Having real estate as an investment can help fight off inflation,” Dean said. “In the right environment, you can think of real estate as a bond on steroids. You’re getting income from the asset and you’re seeing some appreciation on it.”

As the values of property increases, the loan-to-value of mortgage debt decreases, thus acting as a discount and a great option for how to fight inflation.

5. Adjust Your Withdrawal Rate

We’ve talked a lot about withdrawal rates lately. In December, Dean and Bud posed the question if the 4% rule should now be the 3.3% rule. In January we discussed how adjusting your withdrawal rates tie in with how much you should have in retirement savings by age.

Jason took a long look at Trinity University’s study that outlined the performance of returns and inflation from 1926-2014. It helps show that a “safe” withdrawal rate for someone who is just beginning their career will be different than a “safe” withdrawal rate for someone who is in the middle of their career or about to retire. Adjusting your withdrawal rate based on how much you’re making and market performances is critical when it comes to how to fight inflation and achieving financially stability leading up to and through retirement.

6. Harvesting of Gains

This leads us to harvesting gains, which is the last of the five things on our list of how to fight inflation that you can likely do on your own. We’ve already touched on the ongoing market volatility, but it’s pivotal to realize that this is a time to remain calm rather than making drastic decisions that can lead to financial turmoil.

“Harvesting gains is always a smart thing to do, especially if you’re asking your money to produce income. In retirement, you need for your money to go to work for you,” Dean said. “It’s easy to be greedy and ask why you would want to take money out that you’ve made in equities and put it into something safe. When everything is going great, you just want to let it roll. If you’re younger, you can take that approach, but that could be a recipe for disaster if you’re approaching retirement or already retired.”

Your money in the stock market should be viewed as money you’ll be spending seven to 10 years from now. Bud and Dean took a deep dive to explaining that in the Season 6 premiere of The Guided Retirement Show, Understanding Sequence of Returns Risk.

During rough patches like these, it’s so important to harvest gains to have multiple years of income. Utilizing this bucket approach and having two to three years of income in a very safe place is essentially How to Fight Inflation 101.

7. Maximizing Social Security

Now, these next two items on our list of how to fight inflation are where a CERTIFIED FINANCIAL PLANNER™ professional can make a huge difference in the success of your retirement. Social Security and tax planning are two complex matters, both of which tie in with how to fight inflation.

A lot of people probably don’t think of maximizing Social Security as a means for how to fight inflation. However, we’ve illustrated many times to clients the massive difference that proper Social Security claiming strategies over their lifetime.

“We know that Social Security is taxed different than any other asset. That’s why maximizing Social Security benefits and reducing taxes go together, especially when determining how to fight inflation,” Dean said. “The average couple at age 62 will have somewhere north of 600 different iterations. The difference between the best and the worst Social Security claiming strategy can be as much as $100,000 or more of additional income, assuming the same life expectancies.”

Let’s say that you start taking Social Security early starting at 62. Then, add those Social Security earnings to the 5.9% cost-of-living adjustment that we just went through. The differences between claiming early and delaying Social Security can be staggering, especially after COLA factors in.

To learn more about claiming Social Security, download our Social Security Decisions Guide.

8. Reducing Taxes

When you talk about tax planning, we’re reviewing distribution strategy and how much money is optimal to pull from different accounts based on your unique situation. The distribution strategy is key.

“Most of the time, we see people who are overpaying their taxes,” Dean said. “It’s not because their taxes are being prepared wrong; it’s because they’re missing opportunities that they don’t know about because they don’t have the coordinated effort between the CERTIFIED FINANCIAL PLANNER™ professional and CPA.”

We haven’t had to use the bucket strategy much in the past few years, but it could be a lot more important this year to have safe funds that you just have set aside. Inflation and market performance can go hand in hand when it concerns how people are withdrawing out of their accounts.

The idea behind tax planning and maximizing Social Security is to reduce the actual amount of withdrawal that needs to come from your investments to deliver the same amount of spendable income. By doing that, you’re therefore allowing your account to hopefully grow so it can keep up with inflation and give you a higher income in the future.

When you go back to adjusting your withdrawal rate, you can effectively do that if you’ve done proper Social Security planning and proper tax planning. Like we said at the beginning, this is how you can grow your money faster than the inflation rate. By mitigating taxes and maximizing Social Security, you also aren’t solely relying on asset allocation and investments.

9. Reviewing the Five Financial Planning Techniques Outlined in Alpha, Beta, and Now … Gamma

No, we aren’t talking about a fraternity or sorority house when we say Alpha, Beta, and Now … Gamma. We aren’t predicting the name of the next COVID variant either. The Alpha, Beta, and Now … Gamma white paper from Morningstar is a study we’ve referenced a lot since it was published in 2013.

“Alpha talks about growth, Beta talks about volatility, and then Gamma sources income in the least taxing way possible. If we do that, we can fight inflation because we’re streamlining how to attack income by sourcing it out,” Bud said. “By sourcing out, I’m talking about accounts you have that you’ve paid tax on. They’re not going to tax you twice in America, even though they’ll try.”

That study outlines five financial planning techniques which are core to our firm’s principles and key for how to fight inflation. Those five techniques are:

  • Asset Location and Withdrawal Sourcing
  • Total Wealth Asset Allocation
  • Annuity Allocation
  • Dynamic Withdrawal Strategy
  • Liability-Relative Optimization

Total wealth asset allocation and dynamic withdrawal strategy are two points that we frequently talk about. If you have a 60/40 asset allocation at the beginning of the year, you won’t stay there unless you rebalance. Inflation no doubt contributed to that. We hope you have utilized some of the tips for how to fight inflation so that you were seriously impacted.

10. What About Gold and Crypto?

If this article would’ve been written this time last year, you would probably be expecting to see gold, crypto, or other commodities high on the list of how to fight inflation. Well, let’s put a hold on these popular inflation hedges for now.

Gold lost 7% last year. It hasn’t produced a positive return during a long inflationary period in roughly 50 years. Gold can be a complex investment, but Shane’s article, Should I Buy Gold?, can help you make some sense of it.

“Don’t fall into the trap of going to buy a whole bunch of gold,” Dean said. “Gold can be a part of your asset allocation. However, I prefer to participate in what the price of gold is doing in a daily liquid environment. That way I don’t have to pay someone to buy it or a commission to sell it. I want to own it in that ETF format. There are some good gold ETFs out there.”

Now, let’s look at cryptocurrency. While Bitcoin is still up nearly 7% in the last year, it’s lost 33.57% in the last three months.

Ironically, we asked the question, Is Bitcoin Digital Gold?, in one of our recent Modern Wealth Management Educational Series events. Dean and Wayne Robinson discussed the volatility of Bitcoin in that webinar, and it has presented itself ever since then.

Once again, though, this could be a prime opportunity to rebalance. You could come away looking great if you keep in mind the cyclical nature of investments.

The Bottom Line for How to Fight Inflation

We hope that these 10 tips can help you in your quest of how to fight inflation. The main takeaway to remember here is that inflation is a normal economic situation. Everyone needs to plan for it accordingly.

And speaking of planning, we’re also providing you the opportunity to start building your financial plan from the comfort of your own home. You can check out our industry-leading financial planning tool by clicking the button below.


If you have questions about any of these 10 points or our financial planning tool, we welcome you to schedule a complimentary consultation or a 20-minute ask anything session with one of our CERTIFIED FINANCIAL PLANNER™ professionals. We can meet with you by in person, by phone, or virtually.

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The views expressed represent the opinion of Modern Wealth Management an SEC Registered Investment Advisor. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Modern Wealth Management does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.