Episode 88: The Best Way to Fight Inflation in Retirement

Inflation in retirement is one of the biggest concerns for anyone approaching their golden years. It quietly erodes your purchasing power, and when the Federal Reserve cuts interest rates, it can make the problem worse. Fed rate cuts affect the yield on safe money products like CDs, bonds, and annuities — which means they also affect how much income you can safely spend every month.

Let’s break down how Fed rate cuts affect annuities, what this means for your retirement income, and how you can build a strategy that keeps you financially secure.

Why Interest Rates Matter for Retirement Income

Your retirement income depends on how much your savings earn each year. When interest rates are lowered, the returns on bonds, CDs, and fixed annuities also drop. That can force you to withdraw more from your savings, which may shorten how long your money lasts.

This is critical because your income — not just your total savings — determines your lifestyle. We want to help you move away from focusing only on “return on investment” and start thinking about “reliability of income.”

Key points to remember:

• When rates drop, annuity payouts and bond yields fall.
  
• You may need to take on more investment risk to get the same return.
  
• Your withdrawal rate is one of the most important factors in making your money last.
  

Inflation Makes the Problem Worse

Fed rate cuts are often designed to boost the economy, but they can also lead to more inflation. That means your dollars buy less year after year — a big deal if you’re living on a fixed income.

For example, in 2025 it takes $125,000 to buy what $100,000 bought in 2020. That’s a 25% increase in only five years. If you didn’t get a 25% pay raise during that time, your standard of living dropped.

In retirement, you don’t get raises. If your income doesn’t keep pace, you lose purchasing power. Inflation in retirement is like a slow leak in your financial plan — if you ignore it, you’ll feel the pinch more every year.

The 4% Rule Is Not a Guarantee

Many advisors still recommend a systematic withdrawal plan (SWP) based on the old 4% rule — taking 4% of your savings each year and adjusting for inflation.

But research shows that in today’s economy, a safer withdrawal rate may be closer to 3%–3.5%. Why?

• You don’t know how long you’ll live.
  
• You don’t know what the stock market will return.
  
• You don’t know what future inflation will be.
  

This makes a pure SWP risky. If you have a bad sequence of returns early in retirement, you could run out of money too soon.

A Better Approach: Combine Guarantees with Growth

Instead of leaving all your retirement savings exposed to market swings, consider using part of your portfolio to purchase a guaranteed lifetime income annuity. This ensures that no matter what happens with interest rates or inflation, your core income needs are covered.

Here’s an example using today’s numbers:

By splitting between guaranteed income and growth assets, you give yourself more protection against running out of money — even in a low-interest-rate environment.

Don’t Chase Perfect Inflation Protection

Some retirees want a plan that guarantees a 3% increase every year to keep up with inflation. That sounds nice, but it’s not realistic.

Inflation is not the same every year. Sometimes there’s deflation, sometimes inflation spikes higher. The key is to have flexibility — and to have a guaranteed base level of income you can count on.

Social Security already provides an inflation-adjusted benefit. Adding an annuity can give you another predictable stream of income, then you can use investments to cover additional costs as they rise.

Take Back Control of Your Retirement

You can’t control what the Fed does with interest rates, but you can control how you respond. A good plan will:

• Lock in guaranteed lifetime income while rates are still favorable.
  
• Use low-cost index funds to grow the rest of your portfolio.
  
• Avoid expensive management fees that eat into returns.
  

By combining guaranteed income with market growth, you protect yourself from the twin risks of inflation and running out of money.

Ready to See if This Strategy Fits You?

If you want to see how the Atlas Annuity Strategy could work for your retirement, let’s talk. Schedule a Call and pick a time that works for you.

I’ll walk you through your numbers and show you how to build a plan that keeps your income safe — no matter what the Fed does next

Podcast Episode 88: The Best Way to Fight Inflation in Retirement

Download Episode 88: The Best Way to Fight Inflation in Retirement on Apple Podcast