If you’re retired or getting close to retirement, your top priority is making sure your savings will last throughout your retirement years. This has become harder because of rising prices over the past few years, which means your cash doesn’t buy as much as it used to. Right now, costs are still high for things that matter most to retirees, like medical care, housing, and everyday items.
While stocks and bonds can help meet this challenge, some retirees prefer to avoid risk. Others worry whether their savings and investments will be enough to handle rising costs. For people investing for the long term, it’s important to understand how rising prices affect retirement income and how to set up your investments to maintain what your money can buy. What should retirees and future retirees know about today’s situation?
Social Security increases may not match your actual cost increases
The Social Security Administration recently shared that benefits will increase by 2.8% in 2026 to account for rising prices. While any increase is helpful, the price changes measured by economists may not match what you actually experience when shopping or paying bills. This increase will raise the average monthly payment to $2,064, which is only $56 more per month. This is much smaller than the 8.7% increase in 2023, which was the biggest since 1981.
The problem for retirees is that even though prices may rise more slowly, they rarely go back down. The yearly adjustment is calculated using a price index called the CPI-W, which measures costs for working households. But this doesn’t reflect that retirees often face different price increases than younger workers. Healthcare costs, housing expenses, and other things that take up more of a retiree’s budget have often increased faster than the overall measure shows.
For instance, medical care services went up 3.9% over the past year, health insurance increased 4.2%, and home insurance climbed 7.5%. Food prices increased 3.1% during this time, but meat, poultry and fish rose 6.0%. The cost of eating at full service restaurants also grew 4.2% more expensive.
Making this more difficult, Medicare Part B premiums (the monthly cost for Medicare coverage) could rise $21.50 per month in 2026, from $185 to $206.50 based on the latest Medicare estimates. Since this is usually taken directly from Social Security checks, this would use up about 38% of the average $56 increase, leaving retirees with even less buying power.
Living longer means your portfolio needs to keep growing
Just like investment gains can grow over time, so can losses if your portfolio’s buying power doesn’t keep up with rising prices. This matters even more today because retirees need to plan for possibly living longer than past generations. This means how long you might live is an important factor in any financial plan.
According to the latest Social Security Administration information, 40-year-old men and women are expected to live to 79 and 83 years old on average. However, for those who reach 65 years old, these ages increase to 83 and 86. These are just averages – those who live longer than most could reach 94 and 97.
While the chance to enjoy a longer, healthier retirement is a great improvement over the past century, the difference between a 20-year retirement and a 30-year or longer retirement has big effects on how you should set up your investments and how much you can withdraw. This is sometimes called “longevity risk,” which means the risk of living longer than expected. This challenge is one-sided because running out of money during retirement is far worse than leaving money to family or charities.
So while many people focus on income-producing investments like bonds when planning for retirement, it’s also important to keep growth investments like stocks. It also creates money challenges that make careful planning even more valuable. Understanding how to organize investments for retirement periods lasting several decades, while managing how much you withdraw and adjusting to changing market conditions, requires knowledge that goes beyond simple guidelines.
Lower short-term rates also mean less income from cash savings
Recent price data, which was delayed because of the government shutdown, also affects Federal Reserve policy and overall rates. With rising prices slowing down and fewer jobs being created, the Fed is expected to keep gradually lowering its key rates. This change, while good for many parts of the economy, will likely reduce the interest income you can earn from cash and money market accounts over time.
For retirees who have counted on interest from their cash savings over the past few years, this return to lower rates may be difficult. While keeping some cash for short-term expenses and emergencies is still important, depending too much on cash means missing out on the growth potential of stocks and the good yields still available in many bond categories.
The mix of slowing but continuing price increases and falling interest rates creates a difficult situation for cautious investors. Cash loses buying power to rising prices, and the interest it earns will drop as the Fed keeps cutting rates. This makes it even more important for retirees to have a balanced mix of investments that includes growth investments like stocks, which have historically beaten rising prices over long time periods, along with bonds that can provide income and stability.
The bottom line? While Social Security cost-of-living increases provide some help against rising prices, it’s hard for retirees to depend on this alone. With people living longer and short-term rates falling, investors need investment portfolios that can provide both income and growth.
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Any references to protection benefits or steady and reliable income streams on this website refer only to fixed insurance products. They do not refer, in any way, to securities or investment advisory products. Annuity guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. Annuities are insurance products that may be subject to fees, surrender charges and holding periods which vary by insurance company. Annuities are not FDIC insured.
The information and opinions contained in any of the material requested from this website are provided by third parties and have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. They are given for informational purposes only and are not a solicitation to buy or sell any of the products mentioned.
