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Inflation and Retirement: How to Protect Your Savings

“We did not invest all of Mom’s money in this product,” Ms. Cheng said. “We only invested a portion of her I.R.A. and her inherited I.R.A. We did this to address market risk, inflation risk and longevity.” (These additional contracts are often expensive, and additional features increase the cost of an annuity contract. The living benefits rider added 1.35 percent to the purchase cost of the contract for Ms. Cheng’s mother.)

Save and invest. You know this, but it bears repeating. Another solid way to increase preretirement saving is by investing in low-cost, diversified no-commission stock-index mutual funds. Use a cost analyzer to see how much you could save.

“Put away as much as possible” in a combination of 401(k)s, Roth I.R.A.s and H.S.A.s, Ms. Braun-Bostich said. Ensure that your retirement portfolio is diversified and protected with Treasury Inflation-Protected Securities (known as TIPS), short-term bonds, floating-rate securities, and U.S. and international stocks. And if you already have such a portfolio, monitor your progress annually.

“This is a not a one-and-done sort of thing,” Ms. Braun-Bostich said.

With inflation, appearances can be deceiving, because short-term, single-digit increases don’t seem that steep. Even though consumer prices dipped during the pandemic’s first wave, they escalated as businesses began to reopen this year, widespread supply chain issues emerged and many people headed back to work.

Excluding volatile food and energy costs, the Consumer Price Index rose 4.6 percent in October from a year earlier, the highest increase since 1990. That compares with an average of roughly 3 percent between 1913 and 2020, with notable surges in the 1970s (an average of 7.25 percent) and the 1980s (5.82 percent).

No matter how you view inflation, you will need to buffer the cost of living and unforeseen preretirement financial shocks such as job loss, divorce and out-of-pocket medical expenses, which certainly make retirement planning even more challenging. A study by the National Endowment for Financial Education showed that 96 percent of Americans experienced four or more such “income shocks” by the time they reached age 70.

How do you avoid the triple threat of inflation, income shocks and outliving your nest egg? Working with a fiduciary fee-only certified financial planner who can diversify your retirement portfolio with low-cost index funds is a start, Ms. Johnson said. Such a planner will charge you a flat fee or hourly rate based on how much work you need. Don’t work with financial advisers, brokers or agents who charge commissions.

Taking any step is shown to lend a sense of empowerment. “When you’re young, start planning,” Eileen Cheng said. “You can take out a loan for everything — except retirement.”

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