6 Ways To Protect Your Pension Income Against Inflation

With the economy suffering from inflation in the past few months, sticking to the lifestyle we have known can be challenging. While we may earn the same amount of money each month, everything we purchase is costing more. The situation is particularly harder for those on a fixed income — for some seniors, this means that their pension may not last as long as they thought it would. 

During these times of uncertainty, it is especially important to look through your retirement plan again and check to see if you need to make adjustments. Below, we share six ways to protect your pension income against inflation. 

1. Don’t Withdraw Too Much Cash

While this might seem counter-intuitive during times when the cost of living is so high, doing this can help you grow your pension for your long-term needs. Making fewer withdrawals from your pension means that more of it can stay invested, giving them more chances to grow over the rate of inflation. In the end, this will help your savings grow at a closer rate to the current cost of living. 

If you have more money than you need, be sure to invest some of them into long-term investments that can maintain purchasing power as time goes by. Experts also suggest holding around three to six months’ worth of expenses inside an emergency fund, where the rest of your money should be invested (more on this below). 

2. Reassess Your Portfolio 

If you want to fight against rising inflation rates, be sure to invest in assets that will help you maintain purchasing power through the next months and even years. For some, this may mean creating a stock-centered portfolio, but there are also other options. Investing in inflation-protected commodities and bonds may be able to help you get ahead of inflation. 


When talking about long periods of time, stocks have a proven record when it comes to overtaking inflation. While higher levels of inflation are bad for investors and consumers, stocks that are invested in the long run can generate positive returns. This means that you will still be able to grow your wealth even if inflation gets bad. 

Higher levels of inflation in the short term can make investors uneasy and may even lower the value of stocks while the market makes an assessment of the impact of higher prices. However, a broad stock-market index fund will likely be a good investment choice over time because companies will find ways to bypass higher costs and increase their earnings. In the past 40 years, inflation around the country has reached an average of 3% every year, but the S&P 500’s long-term return index is around 10%. 


These are a class of assets that can do well against inflation; commodities are goods that tend to retain their value regardless of where they are produced or who made them. Oil and corn are good examples of commodities, where their value will typically increase as the demand across the country rises. To see how commodities can benefit you, consider dedicating a part of your portfolio to a broad commodities ETF or to a specific commodity such as natural gas or oil. 

However, remember that commodity prices can be unpredictable, so it’s best not to make such assets a big part of your portfolio. When it comes to commodities, the supply will tend to increase at high prices which will then help to make lower prices. But when commodities fall to lower prices, the market will help prices get higher, making them highly volatile. 

Inflation-Protected Bonds

When you retire, you’re probably thinking about switching your portfolio to investments with a fixed income. This could be the right time to hold some fixed income inside inflation-protected bonds, such as Treasury Inflation-Protected Securities (TIPS). This can protect investors against inflation by making adjustments to the principal amount with inflation or deflation according to the Consumer Price Index. 

When your bond matures, you can get either the principal amount when you first bought the bond, or you can get the principal that has been inflation-adjusted, depending on which is greater. Based on the adjusted principal amount, the interest will be paid twice a year, which means that your payments will rise with inflation. Still, TIPS will tend to perform better against inflation, even when it pushes past your expectations.  

3. Consider Retiring Later

This may not be the ideal choice but waiting a little longer than you originally planned to retire, but this can be a good move in times of inflation. Doing this can protect your pension pot from the bad impact that inflation may have on stock markets. Any time when inflation gets too high, the stock market can be disrupted and can lessen the value of your pension investments.  

When you withdraw money from your pension during times when the stock market is falling, this can leave you with a lot less than what you expect. The best thing to do is to withdraw money from your pension when the market is less volatile and a bit more stable. This is due to the fact that selling your investments in a falling market will result in your pension pot running out much faster. 

4. Use Up Your Cash ISAs First

If you were able to set up alternative money pots to draw from, such as an Individual Savings Account (ISA), it can act as a great backup source for income. Instead of your pension, using your cash ISAs to support your retirement for some time will buy some time for the stock market to get back to normal. At the same time, you will also get the opportunity for your invested retirement pot to recover.   

Unfortunately, inflation can slowly take away the value of money, especially the savings we have in the bank which means that its buying power has been reduced. If you still need to draw funds from your pension, it’s best to do so from certain investments such as your dividends and bond payments. Doing this can help you slow down the negative impact that withdrawing money can have on your investment while they have a low value. 

5. Plan for Your Healthcare Costs

When seniors prepare to enter their golden years, one of the most overlooked aspects of this process is planning for healthcare costs. Because healthcare expenses will generally increase at a higher rate compared to overall inflation costs, failing to plan for your medical costs can deal a huge blow to your retirement savings. Below are a few things you can start doing today to prevent rising healthcare expenses from wiping out your retirement funds. 

Look for Long-Term Care Insurance 

The costs for long-term care can become significant and will usually come up towards the end of your life when your retirement savings might be running low. Purchasing a long-term care insurance policy will ensure that the costs related to long-term care will be covered for the rest of your life or for a period of time that you specify. 

Use a Health Savings Account 

An HSA is similar to a retirement account but is exclusively used to pay for medical expenses that are deemed eligible. These will come with a triple-tax benefit for tax-deductible contributions, tax-free withdrawals, and tax-deferred investments for your qualified healthcare expenses. 

Understand Your Medicare Coverage

Unfortunately, many people still believe that Medicare will cover all of their medical expenses once they reach the age of 65. However, this is not quite right — some parts of Medicare will cover prescription drug coverage while other parts will be able to cover hospital stays. Moreover, Medicare won’t be able to cover long-term care as well as areas like hearing or vision, so be sure you know what’s covered and what isn’t as you approach your retirement. 

6. Save More and Spend Less 

One of the best ways to protect your investments and savings from coming up short during your golden years is to ensure that you save more and spend less during your retirement. Generally, seniors who enter retirement will be told that they should take 4% of their total savings in income. This is known as the “4 percent rule”, a practice that encourages people not to withdraw more than 4% of their retirement account per year if they plan to enjoy a 30-year retirement. 

However, retirees won’t be able to do this when inflation is high, especially for those with smaller pots. As such, it might be beneficial to take less — you don’t need to take the same amount every month because your costs and purchases may be different each time.


Because inflation rates have reached a point that hasn’t been seen in decades, seniors will want to protect their savings from higher prices. However, to ensure that you enter your retirement years in the best way possible, consider the options laid out above. Having more than one source for your retirement fund will go a long way towards many years of financial stability long after you stop working.

If you need assistance with planning your retirement, schedule a free consultation with one of our licensed agents.

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