Glossary
What is inflation risk in retirement?
Inflation risk is the erosion of what your income can buy. At 2.5% a year, money loses nearly half of its purchasing power over 25 years — so an income that is comfortable at 65 may not be at 90. Fixed payments with no cost-of-living adjustment carry this risk entirely.
Social Security adjusts for inflation. Most private pensions do not. That difference decides which of your income sources quietly shrinks and which does not.
It is also why the later segments of a plan hold growth assets. Money that will not be spent for twenty-five years has to grow faster than prices, and a portfolio built only for safety fails at exactly that job.
Retiree spending does not track headline inflation neatly either. Healthcare has historically risen faster than the general index, and it is a larger share of a retiree's budget than of a working household's.
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