From the calm years before COVID, to the sharp spike during the pandemic, and now back down to about 3%, inflation has shifted in ways that directly affect how we plan for retirement.
For more than a decade after the 2008 financial crisis, inflation barely registered. Annual increases in the cost of living often hovered between 1 and 2%, and for many households it felt like prices hardly moved at all. Retirees could build budgets with relatively little concern that everyday expenses would erode their purchasing power.
Then COVID came along. Supply chain disruptions, unprecedented government stimulus, and a surge in consumer demand pushed inflation sharply higher. At its peak in 2022, inflation hit levels we hadn’t seen in 40 years. That spike has since cooled, but today inflation has settled at around 3%, a level that, while not alarming, is likely to persist for the foreseeable future.
For many of us, this feels uncomfortable. But here’s the important point: 3% inflation is actually closer to “normal” in a historical sense. What’s unusual is the 15-year stretch of ultra-low inflation we all became accustomed to.
Why This Matters for Retirement Planning
In retirement, time magnifies the impact of inflation. At 3%, the cost of goods and services doubles roughly every 24 years. That means someone retiring at 65 could easily see the cost of their groceries, utilities, travel, and healthcare double over their lifetime.
During the low-inflation years of the 2010s, this wasn’t top of mind. Now, it needs to be. Even a “modest” 3% rate changes how we should frame retirement planning.
Everyone Has Their Own Inflation Rate
One important thing I’ve seen in working with clients: inflation isn’t a one-size-fits-all experience. The government’s published inflation rate is an average of thousands of goods and services. But your “personal inflation rate” depends on where you live, what you buy, and how you spend.
– Healthcare vs. Travel: Retirees who spend more on medical care may face higher-than-average inflation because healthcare costs often rise faster than the overall rate. On the other hand, someone who spends heavily on travel might see expenses fluctuate more with fuel and airfare.
– Lifestyle Choices: Eating out frequently, maintaining multiple vehicles, or living in an area with rising property insurance premiums can all create an inflation experience very different from the published 3%.
– Regional Differences: Costs rise at different speeds in different parts of the country. Housing and insurance costs in Florida, for example, may feel nothing like inflation trends in the Midwest.
How to Monitor Your Own Inflation Rate
While you can’t control the national inflation rate, you can track how it affects you personally. Here are a few steps to consider:
1. Review your spending annually. Compare this year’s grocery, insurance, and healthcare costs to last year’s. Identify categories where you’re seeing the biggest jumps.
2. Build a simple personal index. If 60% of your spending is on housing, food, and healthcare, pay closer attention to how those categories are trending—don’t just focus on overall averages.
3. Use technology. Many budgeting apps and financial planning tools allow you to track spending patterns over time. Reviewing year-over-year changes can help reveal your unique inflation trend.
4. Stress-test your plan. When we review retirement projections, we don’t just assume one inflation number. We look at scenarios with higher inflation in the categories that matter most to you.
Resetting Expectations
The hardest adjustment may be psychological. We tend to frame our expectations based on our most recent experiences. During the 2010s, prices were unusually stable and inflation felt almost nonexistent. Then COVID brought a sudden and painful surge in costs. At its peak, inflation hit levels not seen in four decades.
Now that inflation has cooled to around 3%, it can feel as though things are still “too high,” because our memories are anchored either to the unusually calm pre-COVID years or to the spike of the COVID period. This is recency bias at work. In reality, 3% is much closer to the historical average and is likely to be the environment we live in for the foreseeable future.
That’s why it’s so important to reset expectations. Rather than assuming inflation will return to the ultra-low levels of the past or worry about it reverting to the extremes of COVID, planning should be based on a steady, moderate rate. And because everyone’s personal inflation rate differs, building flexibility into your financial plan is the best way to stay prepared.
Final Thought
Moderate inflation doesn’t have to be an obstacle. By recognizing that your personal experience with rising costs may differ from the headlines, you can prepare with a plan that’s flexible and realistic. The key is to revisit your assumptions regularly, monitor the areas that matter most in your budget, and keep your long-term strategy aligned with your goals.
If the return to “normal” inflation, or your own personal inflation experience, has you rethinking your financial plan, now is a great time to review it.
Data courtesy of YCharts.com. S&P 500 Index returns are from 01/01/2000 through 07/02/2025. The S&P 500 index is an unmanaged index of the 500 largest public companies in the United States. Individuals cannot invest directly in the index. Past performance does not guarantee future returns.