Understand the Risks

Inflation can take a toll on your retirement nest egg and long-term financial security. Fortunately, there are several strategies you can employ to help combat rising prices

Rising prices erode your purchasing power. In December 2003, a gallon of milk cost $2.95. By December 2012, that figure had risen to $3.591¹ As shown in the chart below, a hypothetical 3% annual rate of inflation will double expenses over a 25-year period. Second, inflation serves to undermine the "real," or post-inflation value of your investment portfolio.

Inflation Can Increase Cost of Living

Of particular concern for retirees is the rising cost of health care, as it has surpassed the overall rate of inflation for a number of years. At the same time, employer-provided medical benefits for both pre-retirees and retirees have been steadily declining over the past 10 years.²

1. CPI Average Price Data, Bureau of Labor Department Statistics, May 2013 
2. LIMRA International, Inc., 2010, “Scaling the Pre-Retiree Market,” pg. 67.

Rising Health Care Costs Have Been Outpacing Inflation

Action Steps

Work with your financial professional to develop a plan to try and offset rising costs. For example, whenever possible, consider cost-of-living increase options/riders on any accounts, contracts, or policies. While there are incremental costs associated with these optional features, they may be instrumental in helping you stay one step ahead of inflation. Also consider sources of guaranteed income in retirement, such as annuities, to help pay for the rising cost of medical care and prescription drugs. To learn more, speak with your financial professional or call 800-MAINSTAY (624-6782).