Learn How to Beat Inflation in Retirement Without Going Back to Work
Retirement income does not have to stay flat while your expenses keep rising
Inflation is one of the biggest problems retirees face because retirement can last 20, 30, or even 40 years. A retirement income that looks comfortable today may buy significantly less later if housing, healthcare, insurance, food, utilities, and other expenses continue increasing.
Going back to work is one solution, but it is not the only solution. Retirees can use annuities, inflation-protected Treasury securities, life insurance, real assets, and combinations of these strategies to create income that has the potential to keep up with rising costs.
For retirees primarily concerned with guaranteed lifetime income, a fixed index annuity with an increasing guaranteed lifetime withdrawal benefit or an inflation-protected annuity can be particularly useful. Annuities are insurance contracts designed, among other purposes, to convert savings into retirement income, including income that can potentially last for life.
1. Fixed Index Annuity With Increasing Lifetime Income
One of the first strategies to consider is a fixed index annuity (FIA) with a guaranteed lifetime withdrawal benefit, or GLWB, that offers an increasing income feature. These products can pay up to 8% annually for life—guaranteed, even if your account runs out.
Instead of withdrawing money from investments and hoping the portfolio survives, the GLWB establishes a contractual method for calculating lifetime withdrawals.
Depending on the specific annuity, future income increases may be connected to credited interest, index performance, an income-benefit calculation, or another formula established in the contract. The exact method varies substantially by insurance company and product, so you should not assume every increasing-income annuity works the same way.
The important feature is that some contracts allow an income increase to establish a new guaranteed withdrawal level. Once that increase is locked in under the contract’s rules, subsequent market declines generally do not reduce that established guaranteed lifetime income level.
This is different from directly investing in the stock market. A fixed indexed annuity is an insurance contract, and a living-benefit rider can provide lifetime withdrawals without requiring traditional annuitization.
Example
Suppose your guaranteed retirement income starts at $50,000 per year.
If the annuity’s increasing-income provisions eventually raise the contractual withdrawal amount to $53,000, that higher amount may become your new income floor under the contract.
If another qualifying increase eventually raises it to $56,000, your lifetime withdrawal amount increases again.
The specific calculation, frequency of increases, rider cost, index methodology, and guarantees depend entirely on the contract. Use an annuity calculator with GLWB to estimate potential lifetime income payouts.
Pros
- Provides contractually guaranteed lifetime income.
- Certain contracts can increase lifetime income.
- Does not require you to sell investments during a stock market decline.
- Fixed indexed annuities generally protect the contract value from direct stock-market losses attributable to index declines.
- Some contracts allow access to a portion of the account value.
- Remaining account value can generally pass to beneficiaries.
- Can provide joint lifetime income for married couples when that option is selected.
Cons
- Increasing-income features differ considerably between products.
- Rider fees may apply.
- Surrender charges may restrict access during the surrender period.
- Index gains are generally limited by caps, participation rates, spreads, or other crediting rules.
- Withdrawals exceeding contract provisions can reduce future benefits.
- Guarantees depend on the issuing insurance company’s claims-paying ability.
Who may need it?
This strategy can make sense for retirees who have accumulated substantial retirement savings but are worried about creating a paycheck that lasts as long as they do.
It may be especially useful for someone who wants a retirement income floor but does not want to manage money in retirement or permanently surrender control of the entire premium through traditional annuitization.
Who may not need it?
Someone with more than enough guaranteed pension and Social Security income to cover expenses may not need another lifetime-income guarantee.
It may also be unnecessary for investors expecting high returns from stocks and who don’t mind market risk.
2. Inflation-Adjusted Immediate Annuity
Another option is an immediate annuity with increasing payments, where income starts now and increases with inflation automatically.
An immediate annuity converts a lump sum into an income stream that normally begins relatively quickly after purchase.
Instead of choosing the highest available level payment, you may be able to select a payment option with predetermined annual increases or another inflation-adjustment feature (such as adjusting for the CPI) when offered by the insurer.
For example, you might choose payments designed to increase by a specified percentage each year.
The tradeoff is straightforward: you generally accept less income today in exchange for potentially more income later.
Example
Instead of receiving $40,000 annually as level income, an increasing-payment option might start at a lower amount but provide scheduled future increases.
Whether that produces more lifetime income depends on the contract, your longevity, and the selected payout option.
Pros
- Simple retirement paycheck.
- Can provide income for life.
- Increasing-payment options can help offset future purchasing-power losses.
- Does not depend on managing an investment portfolio.
- Can be structured for one life or, where available, two lives.
Cons
- Starting income is generally lower compared to fixed annuities.
- Traditional annuitization usually sacrifices liquidity and principal access.
- Life-only payout options can leave little or no death benefit after the annuitant dies.
- Inflation could exceed a fixed annual increase.
- Guarantees depend on the insurance company’s claims-paying ability.
Who may need it?
This can work well for retirees looking for hands-off, inflation-proof income starting now, turning part of their savings into something resembling an inflation-conscious personal pension.
Who may not need it?
People who want full control of their money, higher initial payouts, or significant access to the original lump sum.
3. Dividend-Paying Whole Life Insurance
Participating whole life insurance builds cash value that grows tax-deferred and can be accessed anytime as a potential source of retirement cash flow.
Whole life is permanent life insurance that can accumulate cash value. With a participating policy, the insurer may also pay dividends.
Those dividends can potentially be taken in cash, used to purchase additional insurance, applied toward premiums, or borrowed/withdrawn to supplement income.
However, whole life dividends should not be described as guaranteed inflation protection. Dividends depend on the insurer’s experience and policy terms and are generally not guaranteed. Consumers should distinguish carefully between guaranteed and non-guaranteed policy values. Consider 10-pay or single-pay whole life to avoid lifetime premium payments.
Pros
- Guaranteed cash value and death benefit.
- Dividends can help offset inflation over time.
- Ability to borrow or withdraw for supplemental income.
- Adds legacy protection while other retirement assets are being spent.
Cons
- Requires consistent premium payments.
- Lower returns than traditional market investments.
- Dividends are not guaranteed.
- It can take years for cash value to become substantial.
- Withdrawals and loans can reduce cash value and the death benefit.
Who may need it?
Retirees who want to leave a legacy, access tax-free supplemental income, and value permanent insurance alongside cash-value accumulation.
Who may not need it?
People with limited retirement income who cannot afford new premiums, or anyone seeking high market growth.
4. Treasury Inflation-Protected Securities (TIPS)
Treasury Inflation-Protected Securities (TIPS) are government bonds that increase with inflation.
Their principal is adjusted based on inflation as measured using the Consumer Price Index. When inflation occurs, the adjusted principal increases. At maturity, Treasury pays the inflation-adjusted principal or the original principal, whichever is greater.
Interest is calculated using the security’s fixed interest rate applied to its adjusted principal, so the dollar value of interest payments can change as principal changes. Consider TIPS laddering to manage maturity dates for predictable cash flow.
Pros
- Principal and interest rise with CPI.
- Low risk, backed by the U.S. government.
- Good for conservative investors looking for preservation.
- Useful for money earmarked for future inflation-sensitive spending.
Cons
- Lower yield/yields than other investments.
- Not great for steady, high income—better for wealth preservation.
- Market value can fluctuate before maturity.
- TIPS are not lifetime-income insurance.
Who may need them?
Risk-averse retirees wanting to protect a specific part of their portfolio against purchasing-power loss.
Who may not need them?
Retirees needing steady monthly lifetime income or higher long-term growth.
5. Real Assets: REITs, Commodities, and Precious Metals
Physical assets like real estate investment trusts (REITs), commodities, and precious metals generally rise in value with inflation, acting as a hedge against dollar devaluation.
They can perform well during inflationary periods because their physical or rental value increases alongside broader price levels, offering portfolio diversification and growth potential.
However, these assets do not provide guaranteed retirement income. Value can be volatile and hard to liquidate quickly. A helpful tip is using small allocations—5% to 15%—to balance risk and protection.
Pros
- Hedge against dollar devaluation.
- Potential for growth and portfolio diversification.
- Can appreciate alongside broader price inflation.
Cons
- Does not provide guaranteed, steady retirement income.
- Value can be volatile and illiquid.
- Physical property or commodities carry management and market risks.
Who may need it?
Retirees with other guaranteed income who want inflation hedges and capital appreciation.
Who may not need it?
Retirees relying entirely on stable, predictable income sources for daily living expenses.
6. Also Consider: Long-Term Care Insurance
Inflation affects the cost of care dramatically. Healthcare and facility costs often rise faster than general inflation.
Hybrid life/long-term care policies or long-term care annuities or traditional long-term care insurance can help lock in coverage for future costs and protect your retirement lifestyle and estate from being consumed by medical bills.
7. Combine Several Inflation Strategies
You do not have to choose only one strategy. Combining them can address different retirement risks.
For example, a retiree might use:
- Social Security for foundational lifetime income.
- A fixed index annuity with an increasing GLWB for additional guaranteed lifetime income.
- TIPS for inflation-sensitive fixed-income reserves.
- Stocks or real estate for longer-term growth.
- Cash for short-term expenses and emergencies.
- Life insurance or long-term care coverage for legacy and care protection.
This approach separates retirement assets according to what each dollar needs to accomplish instead of expecting one investment to solve every problem.
Which Strategies Provide the Most Predictable Income?
There is an important distinction between inflation protection and guaranteed income.
TIPS directly respond to measured inflation, but they do not insure your income for life. Stocks, REITs, commodities, and precious metals may appreciate faster than inflation, but they can also lose value. Participating whole life insurance can generate dividends, but dividends are not guaranteed.
For retirees whose primary concern is creating a contractual lifetime paycheck with the ability to increase, an appropriately structured fixed indexed annuity with an increasing GLWB or an increasing-payment immediate annuity can provide more predictable income than relying entirely on investments.
An annuity does not make inflation disappear. It can, however, transfer part of the risk of living too long and running short of dependable income to an insurance company.
What We Recommend
If your biggest concern is running out of income, start by determining how much guaranteed income you already have from Social Security and pensions. Then calculate the gap between that income and the amount required to maintain your lifestyle.
For the portion of that gap that you cannot afford to lose, compare guaranteed lifetime-income strategies.
A fixed index annuity with an increasing GLWB can make sense when you want lifetime income while maintaining more access to your contract value.
An inflation-adjusted immediate annuity can make sense when maximizing simplicity and transferring longevity risk are more important than maintaining liquidity.
TIPS, real estate, equities, and other assets can then be used around that guaranteed-income floor to address inflation, growth, liquidity, and legacy goals.
Inflation doesn’t have to ruin retirement. The key is combining income guarantees with inflation protection so that you can beat inflation in retirement before it beats you.
Compare Your Retirement Income Options
Contact The Annuity Expert’s financial advisors and insurance agents to compare free quotes and find the best annuity or insurance coverage to beat inflation.
The right strategy depends on your age, state, amount invested, current guaranteed income, spouse’s age, liquidity needs, inflation concerns, and when you want income to begin. There is no obligation to buy coverage.
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