MW Can you MAGA-proof your retirement income?

By Brett Arends

Retirees are now at risk from politicized inflation data

If you don't even know what the real inflation rate is, how can you get the right cost-of-living adjustment?

It is probably news to no one that we are living through historic times. The question here isn't what you make of them, but how you should best position your finances. Presumably you want to maximize your chances of doing well, but also to minimize your chances of getting completely hosed.

And that second goal goes double, or triple, for those who are retired or nearly retired. You want your finances protected.

Until about a month ago, I thought the safest retirement investments available were inflation-protected U.S. Treasury bonds, known as TIPS, and lifetime income annuities with an annual cost-of-living adjustment. Both are effectively guaranteed to pay you an income that keeps up with inflation.

Today? I'm not quite so sure.

I'm not trying to make political or conspiracy-minded points about the changes President Donald Trump has suddenly made at the Bureau of Labor Statistics, the federal department in charge of the inflation figures. But it is an undeniable fact that Trump wants the official inflation figures down, and he has now shown he is willing to fire bureaucrats - with extreme prejudice - if they give him data he doesn't like.

News that he has nominated E.J. Antoni from the Project 2025 think-tank Heritage Foundation shows that he wants political control of future statistics, particularly the jobs and inflation statistics.

These official CPI figures are the ones that determine the inflation adjustments for your Social Security payments and TIPS bonds. They are actually easy to manipulate downward, even without lying. You just have to change some of the economic "assumptions" that go into your calculations.

Where does this leave retirees?

The good news is that you can buy lifetime income annuities whose payouts go up every year, and which are not at all dependent on the official inflation figures. Actually, because those inflation figures are so uncertain, the private insurance companies that offer annuities don't typically offer them based on the CPI anyway. They just give you an escalator, with payouts going up by a fixed percentage every year no matter what happens to actual prices.

The higher the escalator, the lower your initial payout.

Let me give you an illustration. Let's say you're a 65-year-old woman with $100,000 and you want a guaranteed income for life. At the moment, according to industry website immediateannuities.com, that will buy you a guaranteed income of $7,572 a year, or a payout ratio of 7.57%. (The figures for a man will be slightly higher, because we typically don't live as long as women.)

The problem with that income is that it won't change over time. Each year, inflation will eat away at your purchasing power. Currently, the Federal Reserve has an official inflation target of 2%. Even if you assume that the Fed gets inflation down to that level and keeps it there, by the time you turn 80 the purchasing power of that income will have fallen by about 25%, and by the time you are 90 it will have fallen about 40%.

And even small changes in the average inflation rate will have a big effect on your standard of living over time. If inflation averages 3% in your retirement instead of 2%, your purchasing power will fall by a third between age 65 and age 80, and by a half by the time you turn 88.

Ouch.

So any shenanigans at the Bureau of Labor Statistics should alarm anyone planning for their retirement.

What if you buy an income annuity with an escalator? If you are 65, and you take that $100,000 and buy an annuity whose income goes up by 2% a year, your starting income will be quite a lot lower: $6,144 a year instead of $7,572. But because it rises each year, by the time you turn 78 it will be paying you slightly more than the annuity with no escalator. And the gap will keep widening.

The same principle works if you get an annuity with an annual escalator of 3% or more. Your starting income is less, but the longer you live, the better off you are.

Until recently, I thought an annuity with a 3% escalator probably offered the most cushion you needed against inflation. This was above the Fed's 2% annual target, offering some margin for error. That 65-year-old woman who retires and invests her $100,000 in a lifetime annuity with a 3% escalator would currently start with an annual income of $5,520, for a payout ratio of 5.5%. Your annual income would hit $7,870, effectively matching the income from the annuity with no escalator, by age 77.

Now I'm not so sure. Someone who really worries that the official inflation rate is going to be manipulated can buy a lifetime annuity with a 5% annual escalator. Even that doesn't guarantee you against Weimar-style inflation, although nothing else does either (no, probably not even gold). On the other hand, you get that 5% escalator every year no matter what the new MAGA Bureau of Labor Statistics reports as the official inflation figure.

What will that cost you? If that 65-year-old woman bought this annuity with her $100,000, her first year's income would be just $4,272. In other words, she'd be getting just a little over half of the first-year income of the person buying an income with no escalator.

But compounding is a wonderful thing. By age 78 she is collecting just over $8,000 a year, and by age 85 it's over $11,000.

It's a big tradeoff. Not until her late 80s would she have collected, in total, more money than the person who bought the annuity with no escalator. On the other hand, if the official CPI data is manipulated downwards she will probably do much better than those who put all their faith in TIPS and Social Security's annual cost-of-living adjustments, both of which rely on the official CPI.

And she'll do way better than the person who relies on regular bonds, the traditional investment recommended for retirees. Their protection against inflation is zero.

-Brett Arends

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August 13, 2025 15:56 ET (19:56 GMT)

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