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Chance of Inflation, “Silent” Killer of a Secure Retirement

Isaac Nuriani    |
Jun 25, 2021

It’s been a long time since the U.S. has seen meaningful levels of inflation. But the massive sums spent on COVID relief, combined with possible years of record spending and trillions-per-year deficits courtesy of the Biden administration, have many fearing big-time inflation. In recent months, the question shifted from IF the nation might see signs indicating a chance of deep inflation to WHEN those signs would appear.

We received our answer in early May. That’s when the Bureau of Labor Statistics reported that the April Consumer Price Index (CPI) jumped 4.2% from the previous April, the largest increase since September 2008. Then a couple of weeks ago, we learned May’s year-over-year CPI increase was even bigger than April’s: 5%. The chance of inflation, it appears, is indeed increasing – and fast.

So, are we on the way to seeing the return of the double-digit levels of inflation that tormented America during the 1970s? Honestly, probably not. But the insidious nature of inflation is such that even modest levels can begin to diminish the dollar’s purchasing power. And as big a problem as this can be for everyone, it can be particularly troublesome for retirees, who by definition are no longer earning an income. In that way, inflation can be a retirement-killer.

Fortunately, gold and silver have the capacity to hedge savings against any dangerously erosive effects of inflation on the dollar’s purchasing power. For retirement savers who have to navigate the potentially treacherous economic road ahead, it’s important to understand both the harm inflation can potentially inflict on hard-earned savings and the role precious metals could play in mitigating that damage.

Forget Hyperinflation – Even Mild Inflation Can Take a Big Toll on Savings

In a discussion about inflation and retirement, a recent Forbes article illustrated the significant impact a high level of inflation can have on 1 million dollars in savings.1 The piece assumed the retiree would spend 50,000 dollars per year – if debt is minimal, a comfortable but hardly extravagant retirement. If inflation rose to 12%, a figure reached during the 1970s, the million dollars would last just 11 years and nine months.

Granted, that’s a dramatic illustration. It’s doubtful we’ll see chronic inflation at that level again. Still, it’s not without value to see just how capable inflation is at making even a million dollars disappear in a relative handful of years. But, as I noted previously, when it comes to its impact on retirement, inflation need not be anywhere near that substantial to be considered consequential.

According to the Social Security Administration, nearly 90% of Americans age 65 and older receive Social Security benefits.2 In fact, SBA figures show that 50% of elderly married couples and 70% of elderly unmarried people receive at least 50% of their income from Social Security. So, Social Security benefits are important to the livelihood of an awful lot of retirees, even if they’re drawing retirement income from other sources as well. It turns out that the impact of even a modest level of inflation on Social Security income can be significant.

LIMRA Secure Retirement Institute created a model showing the effect mild inflation can have on the average Social Security monthly benefit.3 LIMRA ran its calculations when the average monthly benefit paid to retired workers was 1,341 dollars per month (it’s now 1,544 dollars per month). According to LIMRA’s analysis, the net effect of a 2% annual inflation rate – the Federal Reserve’s ongoing inflation target, by the way – on one individual’s 20-year retirement period is a diminishment in benefits of just over 73,000 dollars. Bump inflation rate to 3% and the shortfall climbs to more than 117,000 dollars over that 20 years of retirement.

Let’s look at something else. Recent data indicates 14% of Americans ages 60 to 69 have saved between 500,000 and 999,000 dollars for retirement.4 For the sake of this discussion, let’s use the 500,000-dollar figure. This sounds like a lot of money, but remember a retiree with that much saved will be relying on only that and Social Security to financially survive the rest of their lives. And we just saw the damage a relatively minor amount of inflation can do to monthly Social Security benefits.

As it turns out, that “relatively minor amount of inflation” also can wreak havoc on the half-million dollars our retiree has stashed. With a 3% rate of inflation, he or she will need more than 900,000 dollars over just 20 years to purchase what his or her 500,000 dollars buys today.5 Even if we assume an annual inflation rate of “just” 2.5% – a figure acceptable to some Fed presidents – it would take nearly 820,000 dollars in 2041 to buy what the half-million can today.6

Gold and Silver Have the Potential to Help Save Your Retirement From “Deadly” Inflation

In my view, adding precious metals to an asset base can help hedge against a variety of long-term savings risks, including inflation. As potential inflation-fighters, gold and silver are particularly well-suited to success in a chronic environment of rising prices, when that environment also is characterized by low interest rates and massive levels of deficit spending such as that expected to continue throughout the Biden years.7

As for recent rumblings the Federal Reserve actually may start raising interest rates in the next year or two, I’m not really concerned at this time. For one thing, Fed Chairman Jerome Powell himself said this week that near-term rate hikes remain very much in doubt. During an appearance this past Tuesday before the House Select Subcommittee on the Coronavirus Crisis, Powell made it clear that “we have a long way to go” in terms of economic recovery.8 Notably, Powell also said, “We will not raise interest rates pre-emptively because we fear the possible onset of inflation,” suggesting the Federal Reserve will stand firm in its tolerance of irregular inflation spikes as long as the average inflation rate remains around 2%.9

There’s also the matter of President Biden’s ambitious spending plans, which I wrote about recently. White House economists assume interest rates will not move upward for the next 10 years. This stay of rates is essential to help the country tolerate the higher debt loads that likely will result from the Biden fiscal agenda.10 Is it realistic to expect rates won’t move up at all over the next decade? Not in my opinion. But I believe there will be a lot of pressure exerted on the Federal Reserve by the White House – including by former Fed chair and current Treasury Secretary Janet Yellen – to keep rates low so President Biden’s agenda can remain intact.

Even if we do see incremental rate increases over the next few years, I don’t see them providing much of a headwind for gold and silver to fight against. I say this in the context of an overall environment anticipated to consist of near-record-low rates, high levels of deficit spending, a large – and growing – federal-debt-to-GDP ratio and what is likely to be at least a modest level of inflation. That is, the broad environment through at least the near term is anticipated to consist of a number of pro-metals factors such that gold and silver can tolerate a couple of small rate bumps, in my estimation.

I think it’s that potential “modest” inflation that retirement savers should concern themselves with now, given the unmistakable signals of sharp CPI increases in the last two months. The point is that high levels of inflation certainly can be a retirement-killer, but so can levels of inflation that seem, at first glance, to be relatively benign. For both retirement savers and retirees, adding physical gold and silver to their savings regime could be one way to help keep their retirement dreams alive.


1 Bob Sullivan and Benjamin Curry, Forbes.com, “Inflation And Retirement Investments: What You Need To Know” (April 28, 2021, accessed 6/24/21).
2 Social Security Administration, “Fact Sheet” (accessed 6/24/21).
3 LIMRA, “Even When Inflation is Low, it’s Higher for Retirees” (April 19, 2016, accessed 6/24/21).
4 Kathleen Elkins, CNBC.com, “Here’s how much Americans have saved for retirement at different ages” (January 23, 2020, accessed 6/24/21).
5 SmartAsset.com, “Inflation Calculator” (accessed 6/24/21).
6 Jeff Cox, CNBC.com, “Powell announces new Fed approach to inflation that could keep rates lower for longer” (August 27, 2020, accessed 6/24/21).
7 Edward Nelson and Jason J. Buol, StLouisFed.org, “Budget Deficits and Interest Rates: What Is the Link?” (July 1, 2004, accessed 6/24/21).
8 Brian Cheung, Yahoo Finance, “Powell: ‘Long way to go’ on US economic recovery” (June 22, 2021, accessed 6/24/21).
9 Karen Brettell, Yahoo Finance, “Dollar edges higher as Fed debate over inflation continues” (June 22, 2021, accessed 6/24/21).
10 Editorial Board, Wall Street Journal, “Biden’s Budget Signal to the Fed” (June 2, 2021, accessed 6/24/21).
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