And you can manage the course. You may not make eagle, or even a birdie, but you can keep a big number off the card. Figuring out how to retire in an inflationary world can be tricky.
The problem—simply
Prices don’t rise evenly. Groceries, healthcare, and home insurance may sprint while travel or electronics stroll. Headline inflation is ~3% year over year, but the mix matters—especially for retirees who spend more on healthcare. Bureau of Labor Statistics
Utilities, insurance, and groceries can vary zip-to-zip (93021, 93063, 93065, 91360. Your lifestyle—not a headline CPI number—should drive your plan. If you want to know how to retire in an inflationary world, you first have to know what’s ahead.
What’s changing in 2026 that affects retirees and those planning retirement
- Social Security: Benefits rise 2.8% in January 2026 (SSI adjusts 12/31/25). Helpful, but not a free lunch. Reuters+1. And, don’t forget, a portion may be taxable, depending on your provisional income. To calculate your provisional income, you combine the following:
- Your Adjusted Gross Income (AGI), before considering Social Security benefits.
- Any tax-exempt interest income.
- Half (50%) of your total Social Security benefits for the year.
- Medicare (projections): Early estimates point to a higher Part B premium and deductible in 2026; IRMAA brackets also tend to drift up. Translation: some or all of your COLA may get eaten by premiums unless you plan for it.
- Real yields & inflation hedges: The 10-year TIPS real yield sits around ~1.7%, meaning you can lock in positive after-inflation income—something retirees didn’t have for most of the 2010s. FRED+1 Again, don’t forget the impact of taxes.
- I Bonds: Expect mid-single-digit composite rates around resets; good for safety reserves but subject to purchase limits and holding rules. TreasuryDirect+1
Game Plan
- Right-size your cash
Keep 6–12 months of baseline withdrawals in cash-like reserves so you’re not forced to sell when markets are grumpy. Anything beyond that should have a job: T-bills, CDs, short Treasuries, or TIPS ladders. Positive real yields mean your “safe” money doesn’t have to lose to inflation by default. FRED - Build an inflation-aware income ladder
Match the next 5–10 years of expected withdrawals with a ladder of high-quality bonds/Treasuries (including TIPS in the near and mid-rungs). This reduces the “sequence-of-returns” hit while giving cost-of-living ballast. (Yes, we’re deliberately avoiding that overused phrase you told me never to say.) - Own businesses that can raise prices
Broad, low-cost equity exposure (U.S. and international) lets you participate when companies pass along higher costs. Favor quality: strong balance sheets, durable margins, and consistent free cash flow. This is your long-iron (I went to hybrids some time ago)—less flashy than a driver but key to reaching the green. - Use TIPS where they actually fit
TIPS adjust principal with CPI and pay a real yield—use them in tax-deferred accounts when possible to avoid phantom-income headaches. As real yields rise, TIPS become a more compelling core bond holding rather than a niche hedge. U.S. Department of the Treasury - Tax-smart withdrawal ordering
Coordinate withdrawals to manage tax brackets, IRMAA surcharges, and Social Security taxation. Don’t let a big capital gain or large IRA pull nudge you into higher Medicare premiums two years later. (Yes, that two-year look-back for IRMAA still bites.) medicareresources.org - Plan around your COLA
A 2.8% Social Security bump is helpful, but local costs (Ventura County property insurance, utilities, dining) may run hotter in a given year. Don’t mentally spend the COLA before you see your Medicare letter. - Revisit insurance and debt
Re-shop homeowners and auto coverage annually. Consider paying down high-rate debt; keep low, fixed-rate mortgages if they’re truly cheap after taxes. - Guardrails and reality checks
Use an inflation-aware spending rule with “raise/freeze” guardrails. When markets win, give yourself a raise; when they don’t, hold flat. Quarterly check-ins beat annual surprises.
Want to know how to retire in an inflationary world? It would help to have an Inflation Survival Playbook? You can get one here.
Common myths? Maybe, maybe not.
- “Bonds always lose to inflation.” Not always, but close. Most analysis you see, even from the government, doesn’t factor in federal and state taxes. FRED provides a general view, but doesn’t tell the whole story.
- “COLA covers the rising cost of retirement.” Sometimes, but Medicare and taxes can erode it. AP News+1
- “I Bonds are the one-stop inflation hedge.” Great tool, small annual limits and lock-ups; they complement, not replace, a plan. TreasuryDirect
What this looks like in practice (one example)
- Years 1–3 expenses: high-yield cash/T-bills.
- Years 4–10: ladder of Treasuries/TIPS aligned to your spending calendar.
- Years 11+: globally diversified stocks and intermediate bonds for growth and stability.
- Annual tax map: bracket management + Roth conversions in opportunistic windows; IRMAA watch two years ahead. medicareresources.org
FAQ
Is inflation still a big deal if CPI is around 3%?
Yes. You are not an index. Your personal inflation rate can be higher—especially with healthcare and insurance. Bureau of Labor Statistics
Should I delay Social Security to fight inflation?
Delaying raises the base benefit (and all future COLAs compound on a larger base). That’s often powerful longevity insurance—but it must fit taxes and cash-flow.
Are TIPS better than regular Treasuries now?
If you want explicit inflation protection and like locking in a real yield near ~1.7%, TIPS can be attractive as part of the bond sleeve; but only a part. Remember, that 1.7% doesn’t look so good in a taxable account, but it can be a good risk management component.
And, don’t forget to get your copy of the Inflation Survival Playbook.
Get an Inflation Check-Up!
Tell me your priorities, then schedule an introductory call! You can also subscribe to my newsletter.
Jim
