Inflation in Retirement

In September of 2024, the Society of Actuaries (SOA) Research Institute released “Impact of Inflation in Retirement – Survey Findings,”¹ summarizing retiree attitudes and actions toward inflation. Some 1,000 randomly selected users of the health rewards app Optimity provided feedback on 12 questions.

Report author Steve Siegel, ASA, MAAA, senior practice research actuary with the SOA, provided context for the topic.

“When we think about the trends that impact retirement security for the research that we do, we look at it from four perspectives,” says Siegel. “There’s retirement unpreparedness, individual challenges, individual circumstances and then outside influences. Inflation appears in each of the columns (perspectives) in some way.”

Per the survey, inflation was defined as a “persistent increase in the average cost of things.”

Respondents flagged food (85%) and gas/transportation (73%) as the most impacted by inflation. Entertainment, savings, medical, and housing expenditures indicated moderate results, with 27% to 45% of respondents indicating an impact from inflation.

How does this response align with measured experience?

Per the U.S. Dept. of Labor’s Bureau of Labor Statistics, (BLS),² overall, the price index is up since the pandemic, and the effect is dampened if food and energy price increases are removed. Only gasoline has had a negative 12-month percentage change since 2020.

Figure 1: Consumer Price Index Changes

Note: Only gasoline has had a negative 12-month percentage change since 2020.

Source: U.S. Bureau of Labor Statistics; reprinted with permission.

What are retirees doing about it?

According to the survey, the leading action is to reduce spending. Other top responses include withdrawing from savings accounts, delaying major discretionary expenditures, and postponing or canceling travel plans.

Figure 2: Responding to Inflation

Source: Society of Actuaries (SOA) Research Institute

In terms of protecting their savings, 94% of respondents mentioned talking to a financial advisor.

Lee Prichard, a financial advisor at Edward Jones, is not a stranger to talking about inflation. He’s noticing an uptick in concern.

“I am having more individuals proactively ask about inflation or have more of an interest in the subject when I initiate the conversation,” says Pritchett.

He notes that each conversation is unique, but there are some trends. “People are concerned about their ability to spend as everyday items are more expensive.”

Pritchett has also found that there is less concern amongst people still working while retirees or near-retirees are more strategic.

Strategies, he notes, may include working longer, waiting to reach full retirement age for social security, finding supplemental income sources, managing cash, and balancing growth potential with principal protection in investments.

Some 54% of survey respondents indicated a shift from stocks to Guaranteed Investment Contracts (GIC). The study suggests this may be in part due to the respondents’ asset portfolios or a reluctance to move assets around. Should asset shuffling be scrutinized more closely? How much of a difference does it make? We can turn to another research effort to get these answers.

How do different asset allocations perform in inflationary environments?

The SOA’s Research Institute looked at this question using different investment strategies across a stochastic projection of scenarios.³ The research used a basic stochastic projection model with a set of sample assumptions for funds and other economic measures.

Figure 3: Inflation of Consumer Prices, 1960-2023

Source: International Monetary Fund (via World Bank) (2025)

Under these particular sample assumptions, the following illustrative results were noted:

1. Aggressive equity portfolios show the highest growth performance.
2. The value of TIPS may be in protecting against outliving assets.
3. Target date funds may shift toward conservative options too soon relative to a portfolio that switches from aggressive to conservative at the retirement date.

These results are not intended in any way as investment advice. The value is to show the dispersion of modeled sample results that can occur under different strategies and assumptions.

In addition to their investments, could individuals protect themselves against inflation through features in insurance?

How does the insurance industry protect retirees against inflation?

Inflation protection can exist in a variety of forms across various products.

• Annuities:
  • Variable annuities often offer living benefits to provide guaranteed minimum growth, withdrawals or income.
  • Indexed annuities can provide minimum growth rates with potential upside for market performance.
• Long-Term Care
  • Traditional long-term care products may offer various benefit increase options, potentially capped at a certain level.
  • Riders on life insurance products that accelerate death benefits to pay for care may also have optional inflation options.
• Universal, Indexed or Variable Life Insurance
  • Linking benefits to the market can provide upside potential.

Additionally, to the degree that retirees expect income through Social Security, cost-of-living adjustments (COLAs) can help preserve some spending power.

What else is on the minds of actuaries related to the impact of inflation in retirement?

A recent collection of essays⁴ provides insight into this question.

Sam Gutterman, FSA, CERA, FCA, FCAS, HonFIA, MAAA, highlights that inflation has disparate impacts based on individual circumstances. In his essay “Inflation and Retirement – Thoughts,” he writes: “Some who live in a marginalized situation may end up going to bed hungry at night and skimp on even what is thought to be necessities, possibly even becoming homeless. This is the catastrophic side of inflation.”

Anna Rappaport, FSA, echoes the idea of disparate impacts in her essay, “Impact of Inflation on Retirees,” grouping her expectations into three categories: retirees dependent on the government, retirees with low assets and retirees with better resources. Among other impacts, she notes impacts on housing, such as increased housing insecurity and more multigenerational housing.

Kenneth Steiner, FSA, MAAA, advocates for the need to plan by creating an actuarial balance sheet that reflects the present values of assets and liabilities and can be tweaked to measure different assumption scenarios. The results can then inform different actions or “rainy-day” funding levels.

Finally, Colin Jarrett, FSA, EA, details how delaying retirement or the start of Social Security can provide a cushion against future inflation, although he also mentions that medical expenses tend to have a higher inflation rate than core inflation.

What does the future hold?

Could the use of stochastic scenarios deliver insight into potential future inflation fluctuations?

While many central banks take action to influence inflation targets, there may still be noise in the realized rates, including occasional rare spikes or even negative inflation rates.

According to Alasdair Johnston, a director of Advisory Services with Moody’s Scenario Generation team, insurance inflation models should reflect current high levels of inflation, higher future inflation and inflation variability.

Future inflation uncertainty can be measured using various types of data/methods including:

• Economists’ forecasts (survey-based): e.g., standard deviation of 1-year ahead forecasts
• Market data-derived volatility: e.g., standard deviation of historic 1-year inflation swaps

Furthermore, Johnston points out that there may be a benefit in diving deeper into various inflation components. In addition to modeling broad inflation measures, insurers may also have sensitivity to inflation for specific subcomponents of the CPI or alternative cost measures depending on the nature of their business. For example, medical inflation, wage inflation, motor repair inflation and so on.

One simple approach may be to map all of these inflation exposures to a single broad inflation measure, but add variability to the difference between the individual driver and the composite metric. Looking historically, we can see that these subcomponents or alternative measures may not always track closely to broader inflation in the economy. As a result, we may also want to include a model to capture the deviation of these measures for the broader inflation measures already modeled.

Conclusion

The influence of inflation manifests in many ways. For one retiree, a dream golf trip may get deferred or even cancelled. Another will make tweaks to an investment allocation. Yet another might have to move in with their son or daughter. Insurance products have potential features to provide safe harbors from inflation’s adverse winds. Stochastic scenarios are a tool that can help quantify the value of product features and how they can benefit retirees. We may not know how high inflation will go or how long it will last, but research and modeling give us tools to prepare for the possibilities and perhaps even discover new opportunities.

Statements of fact and opinions expressed herein are those of the individual authors and are not necessarily those of the Society of Actuaries or the respective authors’ employers.

Copyright © 2025 by the Society of Actuaries, Chicago, Illinois.