What inflation rate should a retirement plan assume?

The Federal Reserve aims for 2% over the longer run, and U.S. inflation has averaged 3.16% a year since 1914 and 2.57% since 2000. We plan with a realistic rate and then test the plan against a harder decade, because the average hides long stretches above 5%.

Does Social Security keep up with inflation?

It adjusts every year with a cost-of-living increase based on the CPI-W; the increase for 2026 is 2.8%. The adjustment follows a price index for workers, so a retiree's own costs, such as health care, can rise faster.

Are TIPS a good way to protect against inflation?

TIPS principal adjusts with the Consumer Price Index, so held to maturity they protect purchasing power. Their market prices still move with interest rates before maturity, which is why many investors use a ladder that matures as money is needed.

Is cash safe when inflation is high?

Cash keeps its dollar value, but when its yield is below inflation it loses purchasing power every year. It is the right tool for near-term spending and reserves, not for money meant to last decades.

Will inflation come back?

No one can forecast it reliably, including the Federal Reserve. The record shows long calm stretches broken by multi-year waves, so we build plans that hold up across that range instead of betting on one outcome.

Income Planning · 5 min read

When Inflation Comes Back: What a Century of Data Says About Your Retirement Plan

The Financial Sciences Company Published Sep 29, 2026

The short answer

Inflation comes in waves: U.S. prices rose more than 5% in 26 of the 112 years since 1914, usually in multi-year clusters. At 3% a year, prices more than double over a 30-year retirement. A plan prepares by matching essential spending to income that adjusts with prices and by testing itself against a decade like the 1970s.

Inflation reached 8.0% in 2022, the highest annual reading since 1981 (BLS CPI-U). It has since eased, to 4.1% in 2023, 2.9% in 2024 and 2.6% in 2025. For anyone living on savings, the experience raised a lasting question: what happens to a retirement plan when inflation comes back, and what can a plan do about it?

We looked at more than a century of consumer prices and stock returns to answer it. The record shows that inflation comes in waves, that the waves are rarely short, and that the right response is built into a plan long before the next one arrives.

Chart

U.S. inflation by year, 1914 to 2025

Change in the annual average Consumer Price Index. Years above 5% are highlighted; negative years were deflation.

Above 5%
0% to 5%
Deflation

Source: U.S. Bureau of Labor Statistics CPI-U (via Shiller/Yale through 2021; BLS annual averages from 2022) · annual average, year over year

View the data

Year	Inflation
1914	1.3%
1915	0.9%
1916	7.7%
1917	17.8%
1918	17.3%
1919	15.2%
1920	15.6%
1921	-10.9%
1922	-6.2%
1923	1.8%
1924	0.4%
1925	2.4%
1926	0.9%
1927	-1.9%
1928	-1.2%
1929	0.0%
1930	-2.7%
1931	-8.9%
1932	-10.3%
1933	-5.2%
1934	3.5%
1935	2.6%
1936	1.0%
1937	3.7%
1938	-2.0%
1939	-1.3%
1940	0.7%
1941	5.1%
1942	10.9%
1943	6.0%
1944	1.6%
1945	2.3%
1946	8.5%
1947	14.4%
1948	7.7%
1949	-1.0%
1950	1.1%
1951	7.9%
1952	2.3%
1953	0.8%
1954	0.3%
1955	-0.3%
1956	1.5%
1957	3.3%
1958	2.7%
1959	1.0%
1960	1.5%
1961	1.1%
1962	1.2%
1963	1.2%
1964	1.3%
1965	1.6%
1966	3.0%
1967	2.8%
1968	4.3%
1969	5.5%
1970	5.8%
1971	4.3%
1972	3.3%
1973	6.2%
1974	11.1%
1975	9.1%
1976	5.7%
1977	6.5%
1978	7.6%
1979	11.3%
1980	13.5%
1981	10.3%
1982	6.1%
1983	3.2%
1984	4.3%
1985	3.5%
1986	1.9%
1987	3.7%
1988	4.1%
1989	4.8%
1990	5.4%
1991	4.2%
1992	3.0%
1993	3.0%
1994	2.6%
1995	2.8%
1996	2.9%
1997	2.3%
1998	1.6%
1999	2.2%
2000	3.4%
2001	2.8%
2002	1.6%
2003	2.3%
2004	2.7%
2005	3.4%
2006	3.2%
2007	2.9%
2008	3.8%
2009	-0.4%
2010	1.6%
2011	3.2%
2012	2.1%
2013	1.5%
2014	1.6%
2015	0.1%
2016	1.3%
2017	2.1%
2018	2.4%
2019	1.8%
2020	1.2%
2021	4.7%
2022	8.0%
2023	4.1%
2024	2.9%
2025	2.6%

Inflation comes in waves

Since 1914, U.S. consumer prices have risen 3.16% a year on average, and 2.57% a year since 2000 (our calculation from BLS CPI-U via Shiller data). The average hides the shape. Inflation ran above 5% in 26 of those 112 years, and those years arrived in clusters: 1916 to 1920, the 1940s, 1969 to 1982 with only two short breaks, 1990, and 2022. Prices also fell outright in the early 1920s and the early 1930s, a reminder that deflation is part of the record too.

The Federal Reserve aims for 2% inflation over the longer run (Federal Reserve). That target is a goal, not a promise, and the waves above happened while the Fed was trying to prevent them.

What inflation does to a retirement plan

The arithmetic is simple and relentless. At 3% a year, prices more than double over a 30-year retirement: $100,000 of spending in the first year becomes $242,726 in the thirtieth. Over the last 30 years the real pace was close to that. A dollar in 2025 bought what 47 cents bought in 1995.

Different income sources respond differently:

Social Security adjusts each year with a cost-of-living adjustment based on the CPI-W; the increase for 2026 is 2.8% (SSA, 2026 COLA). See our guide to the 2026 COLA for what that adds to a check.
Many private pensions and annuities pay a fixed amount, so their purchasing power shrinks every year that prices rise.
Cash and short-term bonds keep their dollar value, and their yields tend to follow short-term interest rates, which can lag inflation.
Stocks have outpaced inflation over long periods, with long stretches when they did not.

The inflation you feel is personal

The Consumer Price Index tracks a basket of goods and services bought by urban households. A retiree's basket can look different: more spent on health care and housing, less on commuting and childcare. Two households can face very different inflation in the same year, which is why we build a plan around a household's own spending rather than the national headline alone.

Why the first decade of retirement matters most

Inflation early in retirement does the most damage because it compounds for the longest. Take a household spending $100,000 a year. After ten years of 3% inflation, the same lifestyle costs $134,392. After ten years of 5%, it costs $162,889, about $28,500 more every year from that point on. If that higher inflation arrives while stocks are struggling, as they did in the 1970s, the portfolio is asked for more just when it has less to give. That combination is why we test a plan against a high-inflation start, not just a high-inflation average.

How stocks did when inflation was high

The decade-by-decade record shows the pattern. The figures are annual averages for each decade, with stock returns including reinvested dividends and measured after inflation (our calculation from Shiller data).

Decade	Inflation per year	U.S. stocks after inflation, per year
1920s	-0.1%	16.9%
1930s	-2.1%	1.9%
1940s	5.5%	3.6%
1950s	2.0%	16.2%
1960s	2.3%	5.2%
1970s	7.1%	-1.1%
1980s	5.5%	11.0%
1990s	3.0%	15.0%
2000s	2.6%	-3.0%
2010s	1.8%	11.6%

Three lessons stand out. High and rising inflation was hard on stocks: in the 1970s they lost ground to inflation for a full decade. The direction of inflation mattered more than its level: the 1980s averaged 5.5% inflation, yet stocks returned 11.0% a year after inflation as inflation fell from its peak. And low inflation was no protection on its own: the 2000s had modest inflation and the weakest real stock returns in the table. Past decades describe what happened, not what the next one will bring.

Bonds had their own inflation problem. The 10-year Treasury yield rose from 7.79% in January 1970 to 10.39% in December 1979 and peaked at 15.32% in September 1981 (Shiller data). When yields rise that far, bonds bought at the lower rates lose market value, and their fixed payments buy less.

Tools that respond to inflation

Treasury Inflation-Protected Securities. The principal of a TIPS bond adjusts with the Consumer Price Index, and interest is paid on the adjusted principal (TreasuryDirect, TIPS). A ladder of TIPS maturing year by year can fund essential spending in real terms.
Series I savings bonds. Their rate combines a fixed rate with an inflation rate reset twice a year, with annual purchase limits (TreasuryDirect, I bonds).
Delaying Social Security. A larger starting benefit means every future cost-of-living increase applies to a bigger base. Our claiming strategy guide shows the trade-off by age.
A diversified stock allocation. Over long periods it has been the main source of growth above inflation, which is why it needs to be sized for the decades when it lags.

How we build inflation into a plan

Plan with a realistic rate, then test a harder one. A plan that works only at 2% inflation is fragile. We look at how it holds up through a decade like the 1970s.
Match essential spending to income that adjusts. Social Security, TIPS and other inflation-linked income can cover the bills that cannot be cut.
Keep flexibility in the rest. Travel and gifts can flex when prices spike; a plan that names which spending is flexible is easier to live with.
Watch the withdrawal rate, not just the balance. Our guide to retirement withdrawal rates explains why inflation early in retirement matters most.

How this may apply to your plan

If the last few years made you wonder how your plan would hold up if inflation returned, the useful work is specific: which of your income sources adjust with prices, which spending is essential, and what a decade of 5% inflation would do to both. We can run that review and build the inflation-linked pieces into the plan before the next wave.

Sources and further reading

Next steps

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The views and opinions expressed here are those of The Financial Sciences Company as of the publish date and are provided for informational and educational purposes only. They are not personalized investment, tax, or legal advice. The Financial Sciences Company, LLC is a registered investment adviser. Registration does not imply a certain level of skill or training. Additional information is available in our Form ADV at adviserinfo.sec.gov.

General educational information, current as of 2026. Figures and rules change. For guidance specific to your situation, speak with a qualified professional.