Personal Finance

We're in our 50's and would love to retire in the next few years - how much inflation should we plan for in the future?

Joey Frenette

Published: February 18, 2025 9:35 pm

Last Updated: February 18, 2025 9:52 pm

Inflation is a major thorn in the sides of many retirees and those closing in on retirement. Indeed, whenever prices of everyday goods rise by a notable amount since one’s last purchase, alarm bells can go off in the ears of those living off of a fixed income.

And with inflation in America recently climbing back to 3%—not an alarming level, but the upward trajectory is somewhat unnerving—it’s not hard to imagine many people expecting a repeat of the inflationary environment we faced just two years ago. Undoubtedly, inflation is working against us all. And for prospective retirees, it’s a threat to one’s nest egg that must be monitored and adjusted for every step of the way. 

Indeed, if one feared running short on cash in retirement before inflation, one has to think that the possibility of an inflation resurgence (or a second wave of inflation) has many feeling like sticking it out in the workforce a bit longer or, at the very least, adjusting their asset allocation in a way that accounts for any bumps in the road that inflation could swing our way.

Are college costs, hefty expenses, and inflation enough to postpone an early retirement?

In this piece, we’ll look at the case of a Reddit user in their 50s who’s seeking to retire early but is a bit concerned about all the inflation we’ve encountered lately. They’re wondering how much inflation they should prepare for and if there’s anything they can do to respond to any potential price surges as their adult child heads off to college (spoiler alert: tuition prices have been soaring as well).

As a poster in r/ChubbyFIRE, they’re doing quite well financially. But with ample hefty expenditures (cars, vacation expenses, insurance premiums) to consider, this 50-something-year-old couple will be on quite the balancing act. And if inflation keeps going on the ascent, perhaps they could be at risk of being knocked off the right balance. There are solutions, though. And we’ll explore some of the many ways to prepare for and react to any inflationary spikes over the next year and beyond.

The first years of early retirement (“go-go” years) will be expensive.

Undoubtedly, college and everything it entails is going to cost a small fortune. There’s a reason why many Americans start saving up decades in advance. Aside from tuition, there are textbooks, dorm rooms, food, travel, and more to consider as one’s children head off to college. While I wouldn’t go as far as to say the couple should delay their early retirement as college costs and inflation bite, I do think that the couple should be willing to play things by ear.

If inflation does happen to revisit 8% again, which would be more than the couple expects, perhaps cutting back on discretionaries and luxuries like vacations could make a lot of sense. Possibly taking one “go” out of the “go-go” years could be a way to adapt if we are headed for a nasty inflationary spike, perhaps on the back of Trump tariffs or something else that’s not yet on our radar.

A lower withdrawal rate and the right securities can help one ready up for more inflation.

The couple’s 3-3.5% withdrawal rate is already erring on the side of caution, especially compared to the more widely followed “4% rule.” Perhaps bolstering one’s investments with TIPS (Treasury Inflation-Protected Securities) can help one better navigate inflationary risks. Such securities hedge against inflation and can help retirees keep their heads above water.

As always, though, ensure TIPS complement an already diversified portfolio of stocks and bonds. Who knows? The couple may already have natural inflation hedges within their stock fund. All considered, I think the couple is on the right track as they aim for a conservative withdrawal rate while bracing for the possibility of more price increases. A financial planner could be of help to get the portfolio in the right spot.