By Neal Templin

High inflation pinches retirement. But there are steps you can take to make it less painful.

They include buying stocks, Treasury inflation-protected securities (TIPS) and a smidgen of gold, paying attention to your cash, and waiting as long as possible to collect Social Security to max out your inflation-adjusted benefit.

"You don't do one thing," says William Bernstein, a money manager and author of The Four Pillars of Investing: Lessons for Building a Winning Portfolio. "You do several things."

Earlier this month, the creator of the 4% withdrawal rule for retirement calculated the worst year to begin a 30-year retirement at Barron's request. The year from William Bengen, a retired financial advisor, was surprising. It turned out to not to be 1929, right before stocks plunged 89%, but 1968, when the U.S. began a period of high inflation and weak markets.

Inflation is a growing concern now. Prices soared 9.1% in June 2022, fueled by pandemic stimulus programs. They dropped after that but remained well above the Federal Reserve's target of 2% annual inflation. In recent months, inflation has increased again, this time fed by higher energy prices stemming from the Iran war. The growing national debt is another concern and could eventually spark higher inflation.

Here are five tips for surviving rapidly rising prices in retirement.

Wait as long as possible to start receiving Social Security benefits. "The No. 1 thing you can do is delay collecting Social Security," says David Blanchett, head of retirement research for Prudential Financial. "That is the only thing today that provides income for life that is explicitly linked to inflation."

How much inflation protection do you get? When prices spiked in the late 1970s and early 1980s, Social Security benefits rose 9.9% in 1979, 14.3% in 1980, 11.2% in 1981, and 7.4% in 1982.

It was the same story in the recent bout of inflation following the pandemic. The Social Security Administration increased its cost-of-living adjustment by 5.9% in 2021, and 8.7% in 2022. Retirees still suffered but they were protected from the permanent effects of higher prices.

Own stocks. When inflation and interest rates climb, bond prices -- which have an inverse relationship to rates -- tumble. Stocks usually do better. The market may still get rattled by high inflation -- it performed badly in the 1970s -- but it will eventually bounce back.

"Over time equities should rise with inflation because companies can raise their prices," says Wade Pfau, author of the Retirement Planning Guidebook. "But there is risk involved."

Pfau recommends a globally diversified portfolio, though he notes that U.S. stocks may provide a better hedge for the U.S. inflation that impacts the retiree's cost of living.

What sort of stocks do best in high inflation? Bernstein says commodity companies fare better. He also likes value companies because they tend to have more debt. High inflation allows debtors to repay loans with watered-down dollars.

Steer clear of bonds except for TIPS. Treasury inflation-protected Securities are different animals from other bonds. Their principal value is adjusted upward when prices rise .

On top of that, TIPS pay a fixed interest rate, or real yield, that has varied over time. Right now, the high real yield for TIPS is historically high. It is 2.09% for a 10-year TIPS, meaning you will get that rate on top of inflation.

In times of rising rates, prices of TIPS, like other bonds, can still be hurt. But they will be hurt less. Despite rising rates this year, the Fidelity Inflation-Protected Bond Index Fund has returned 1.66% this year. By contrast, the Fidelity Intermediate Treasury Bond Index Fund has returned -0.29%.

TIPS can also be used to construct a bond ladder that will protect you from inflation during a long retirement. Here is a website that shows you how to do it.

Pay attention to your cash. For years, cash investments paid little and it made little difference where you parked it. That isn't true today.

Susan Elser, a financial advisor in Indianapolis, says seniors keep lots of cash in bank accounts that pay little or no interest. "In their mind, it's safe. But it's really eroding their purchasing power by 3% a year."

Elser likes Merchants Bank of Indiana, which has a money market account paying 3.5%. The Vanguard Federal Money Market Fund currently yields 3.55%.

Near-cash instruments like ultrashort bond funds yield even higher but won't be hurt badly if interest rates continue to rise. The Fidelity Conservative Income Bond Fund currently yields 3.87%. In 2022, when interest rates soared and many bond funds posted double-digit losses, it still returned 1.26%.

Own precious metals. Gold and other precious metals tend to do well in inflationary periods. Gold, currently selling at $4,576 an ounce, has tripled in prices since 2020.

Bengen has about 5% of his portfolio in gold or gold-mining companies and could go as high as 10% or even 15%.

His 4% rule (later revised to 4.7%) said that investors could safely withdraw that much money from a portfolio of stocks and bonds, adjusted annually for inflation, over a 30-year retirement.

But he warns that even using the 4% rule, persistently high inflation would imperil portfolios by making retirees withdraw more and more money each year.

"If inflation gets bad enough it's going to create terrific problems for retirees." Bengen says. "Their wealth will be eroded rapidly."

Write to Neal Templin at neal.templin@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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May 30, 2026 02:00 ET (06:00 GMT)

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