If you’re retired or close to retirement, making sure your savings last throughout your retirement years is likely your top priority. This has become more difficult because of rising prices over recent years, which means your cash savings don’t buy as much as they used to. Right now, costs remain high in areas that matter most to retirees, such as medical care, housing, and basic everyday items.
While both stocks (ownership shares in companies) and bonds (loans to governments or companies that pay interest) can help address this challenge, some retirees prefer to avoid risk. Others worry whether their savings and investments will be sufficient to handle increasing living costs. For people saving for the long term, it’s crucial to understand how rising prices affect retirement income and how to set up your portfolio (your collection of investments) to preserve your buying power. What key information should retirees and future retirees understand about today’s financial landscape?
Social Security increases don’t always match your actual rising costs
The Social Security Administration just announced a 2.8% cost-of-living adjustment (commonly called COLA) for 2026. This adjustment reflects continued price increases in the economy. While any increase is helpful, the price changes that economists measure can be different from what you actually experience in your daily life. In practical terms, this adjustment will increase the typical monthly benefit to $2,064, which is only $56 more per month. This is much smaller than the 8.7% adjustment in 2023, which was the biggest increase since 1981.
The difficulty for retirees is that even though prices may rise more slowly, they almost never go back down. The COLA is calculated using a measure called the CPI-W, which tracks prices for working households. However, this doesn’t reflect the fact that retirees often face different price increases than younger workers. Healthcare costs, housing costs, and other expenses that make up a large part of retiree budgets have often increased faster than the overall measure suggests.
For instance, medical care services costs rose 3.9% over the past year, health insurance went up 4.2%, and home insurance jumped 7.5%. Food prices increased 3.1% during this time, but meat, poultry, and fish rose 6.0%. The cost of eating at full-service restaurants also grew 4.2% more expensive.
Making things more challenging, Medicare Part B premiums (the monthly payment for certain medical coverage) could increase $21.50 per month in 2026, from $185 to $206.50 according to recent Medicare estimates. Since this payment is usually taken directly from Social Security checks, this would use up about 38% of the average $56 COLA increase, leaving retirees with even less additional money to spend.
Living longer makes growing your portfolio more important
Just as your investments can grow over time, your purchasing power (what your money can actually buy) can also shrink if your portfolio doesn’t keep up with rising prices. This matters even more today because retirees need to plan for potentially living longer than earlier generations. This means how long you might live is an important factor in any retirement plan.
Based on the latest Social Security Administration information, 40-year-old men and women can expect to live on average to ages 79 and 83. However, if you reach age 65, your expected lifespan increases to 83 and 86. These are just averages—some people in the top 10% could live to 94 and 97.
While having the chance to enjoy a longer, healthier retirement is a wonderful improvement over the past century, the difference between a 20-year retirement and a 30-year or longer retirement significantly affects how you should build your portfolio and how much you can safely withdraw. This is sometimes called “longevity risk,” meaning the risk of outliving your money. This challenge is one-sided because running out of money during retirement is far more serious than leaving money to family members or charities.
Therefore, while many people focus on income-producing investments like bonds when planning for retirement, it’s also important to keep growth-focused investments like stocks. Living longer also creates financial challenges that make careful planning even more valuable. Understanding how to build portfolios for retirements lasting several decades, while managing how much you withdraw and adjusting to changing market conditions, requires expertise beyond simple guidelines.
Lower short-term interest rates also mean less income from cash savings
The recent Consumer Price Index data, which was delayed because of the government shutdown, also affects Federal Reserve policy (the central bank’s decisions about interest rates) and interest rates more generally. With price increases slowing and fewer jobs being created, the Fed is expected to keep gradually lowering its policy rates. This change, while helpful for many parts of the economy, will likely reduce the interest income you can earn from cash and money market accounts over time.
For retirees who have relied on interest income from their cash savings over the past few years, this shift to lower interest rates may create a challenge. While keeping some cash for upcoming expenses and emergencies remains important, depending too much on cash means missing the growth potential of stocks and the attractive interest payments still available from many types of bonds.
The combination of slowing but continuing price increases and falling interest rates creates a difficult situation for cautious investors. Cash loses buying power because of rising prices, and the interest it generates will decrease as the Fed keeps cutting rates. This makes it even more important for retirees to maintain a balanced portfolio that includes growth-focused assets like stocks, which have historically beaten rising prices over long periods, alongside bonds that can provide income and stability.
The bottom line? While Social Security cost-of-living adjustments provide some protection against rising prices, it’s challenging for retirees to depend on this alone. With people living longer and short-term interest rates falling, investors need portfolios that can deliver both income and growth.