How does inflation affect my retirement?

Inflation matters more in retirement because the time span is long and your paycheck no longer rises with prices. Even modest inflation compounds.

Worked example: at 3% a year, prices rise by a factor of 1.03 to the 20th power, about 1.81. A household spending $50,000 today would need about $90,300 in 20 years to buy the same things. Put the other way, a fixed $1,000 a month would buy what about $554 buys today.

Social Security is indexed. Benefits rose 2.8% in January 2026, based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). That added about $56 a month to the average retirement benefit. The 2025 increase was 2.5%, and the past decade averaged about 3.1%.

Not every cost moves with the general rate. The standard Medicare Part B premium rose from $185.00 in 2025 to $202.90 in 2026, about 9.7%, more than three times the COLA. When Part B rises faster than the COLA, part of the raise goes to Medicare.

Check each income source for indexing. A pension with no cost-of-living adjustment, a fixed annuity, or a bond paying a set amount holds its dollar value but loses buying power every year. The larger the share of your income that is fixed, the more of your future spending your savings have to cover.