How to protect your retirement savings from inflation

When planning how much you need to save for retirement, there is one factor that sometimes is overlooked: inflation. When food, gas, and other prices rise, so does the cost of your basic living expenses. If you expect your monthly living expenses to be $4,000, inflation might push that number to $4,500 or more, which could happen for some months or even a few years. In other words, once you retire, your money may not stretch as far as it did when you were planning for your retirement.

Fortunately, planning for inflation does not have to be complicated. While you can’t fully predict how much inflation will affect your finances year over year, you can make some assumptions and plan to set aside extra funds to cover extra expenses. There are four practical steps you can take to help manage your retirement savings and protect your hard-earned money.

What you'll learn:

• Keep your emergency fund in a high-rate savings account
• Lock in returns with certificates
• Maximize your tax-advantaged accounts
• Consolidate your financial accounts

Keep your emergency fund in a high-rate savings account

You don’t have to settle for traditional bank savings accounts that pay pennies in interest, especially for your emergency fund. Instead, look at high-rate savings accounts, where your cash can stay liquid while still growing. This way, if you need to pay for an unexpected medical bill or home repair, you can withdraw your cash without penalty. And while your cash sits in the account, it will continue to work for you.

Learn more about Alliant’s High-Rate Savings account.

Lock in returns with certificates

If you have extra cash you know you may not need right away, certificates (also known as certificates of deposit or CDs for short) can offer outstanding, guaranteed interest rates. You agree to leave your funds untouched for a set period, anywhere from three to 60 months. In return, you earn a fixed rate and your money remains secure.

For example, putting $10,000 into a 12-month certificate helps ensure you know exactly how much interest you will earn by the end of the term. This protects you from market risks and gives you a reliable, steady way to outpace inflation.

A savings strategy called certificate laddering is also a way to take advantage of the higher returns certificates provide while keeping some of your savings accessible. To do this, you split a lump sum across certificates with staggered short-, mid-, and long-term maturities, typically spaced evenly apart. As each short-term certificate matures, it’s reinvested into a new long-term one, helping you earn competitive rates while keeping regular access to your funds.

Video: How to Build a Certificate Ladder

Maximize your tax-advantaged accounts

Taxes can drain your retirement income just like rising prices. Choosing the right individual retirement account (IRA) can give you significant tax advantages. Even if you are already retired, you might still have options to continue growing your money efficiently.

Traditional IRA

This account allows your earnings to grow tax-deferred. You only pay taxes when you make a withdrawal after age 59 ½. Consider this option if you want to reduce your taxable income now, and expect to be in a lower tax bracket when you take the money out.

Roth IRA

A Roth IRA lets your earnings grow tax-free. You pay taxes on the money before you put it into the account. This is a great choice if you want more flexibility with your withdrawals. After age 59 ½, you can take out your contributions tax-free and penalty-free at any time, as long as the account has been open for at least five years. Paying less in taxes can help you cover items that cost more due to inflation.

Learn more about Alliant’s individual retirement account options.

Consolidate your financial accounts

Having multiple 401(k) plans from past employers or scattered savings accounts across different banks makes it hard to track your wealth. Consolidating your accounts into a single institution can simplify your life.

You can often roll over older retirement plans into a traditional IRA. Having all your funds in one place makes it much easier to calculate your required minimum distributions, track your interest rates, and adjust your budget for inflation.

Turning your financial aspirations into reality

Navigating your finances in retirement does not have to feel overwhelming. By setting clear spending goals, using secure savings options, and choosing the right mix of IRAs, you can build a stable foundation that withstands inflation and other unexpected costs.