Americans now face a new “triple threat” to retirement security: Rising inflation, increasing healthcare costs, and changing tax laws.
These three forces don’t just add pressure; they multiply it across all aspects ofretirement. Seniors may choose to keep working longer or shelve plans for travel and adventure to help balance retirement budgets. To navigate this triple threat and protect their nest egg, retirees need a three-pronged response to inflation and retirement planning that boosts their purchasing power, improves their flexibility, and increases their liquidity.
Here’s how to preserve your retirement income and navigate the new economic landscape.
INFLATION’S SILENT DRAIN ON RETIREMENT INCOME
According to data from the U.S. Bureau of Labor Statistics, inflation rose 3% from September 2024 to September 2025. While this increase qualifies as “modest,” it still has a significant impact on consumer purchasing power, especially for fixed-income retirees after several years of high inflation.
Many of these retirees depend on a mix of Social Security benefits and existing investments to ensure financial stability. But as noted by a recent AARP survey, the Social Security Cost of Living Adjustment (COLA) isn’t keeping pace with inflation — 61% of Americans 50 or older “strongly disagree” that current COLA adjustments will keep up with the rising costs of food, housing, utilities and insurance premiums.
While common advice for seniors facing cost-of-living concerns is to “just stay invested,” this isn’t a viable retirement strategy in high inflation if they’re regularly withdrawing from their investments to cover basic living costs.
HEALTHCARE AND LONG-TERM CARE COSTS ARE RISING FASTER THAN EVERYTHING ELSE
On top of inflation, healthcare and long-term care costs are also increasing, evenas support from Medicare and Medicaid is being reduced. This leaves many seniors wondering how to cover healthcare costs in retirement.
Consider the recent 2024 Retiree Health Cost Index from Millman, which found that a healthy 65-year-old couple on Original Medicare with Part D coverage will typically spend more than $395,000 on healthcare across their retirement. Moreover, most Medicare plans don’t offer coverage for essential expenses, including long-term care, dental services and senior care needs, such as in-home aides or physical therapy.
Seniors are also facing Medicare reductions outlined in the One Big Beautiful Bill (OBBB) Act, which cuts more than $1 trillion from healthcare programs and speeds up the timeline for Medicare trust fund insolvency.
TAX LAWS ARE IN FLUX — AND RETIREES WILL FEEL IT
The OBBB Act also makes changes to tax laws. One benefit for seniors is short-term tax relief. Under the Act, seniors can claim an additional tax deduction of $6,000 per person or $12,000 per couple, which can help reduce financial strain.
The impact of tax changes on retirees, however, isn’t set in stone. Future tax brackets, Social Security taxation levels, and required minimum distribution (RMD) rules remain in flux. For retirees, changing laws could mean tax bracket creep, income-related monthly adjustment amount (IRMAA) surcharges, and higher taxable withdrawals if they don’t (or can’t) plan ahead.
THE NET EFFECT OF THE TRIPLE THREAT
In isolation, these three pressures are problematic. In combination, they could create a challenging cycle for seniors.
Consider inflation, which increases the cost of everyday goods and services. With COLA not keeping pace, seniors withdraw more from their investments, which in turn increases their taxable income and may push them into higher tax brackets. Once in a higher tax bracket, retirees owe more to the IRS each year. Combined with higher medical costs, this means less discretionary income.
This can create a situation where retirees who lack liquidity are forced to sell investments during down markets. This lowers their returns — and kicks off the cycle again.
STRATEGIES TO PROTECT YOUR RETIREMENT NEST EGG
While seniors face retirement revenue challenges, they’re not without options. Here are five strategies to help protect your retirement nest egg.
1. Build Multi-Source Liquidity
Relying on a single retirement investment account limits your options to buy or sell. Using a multi-source strategy improves your ability to navigate market fluctuations.
2. Shift Part of Your Portfolio to Inflation-Resistant or Non-Asset Markets
While traditional investments still play a key role in financial stability, it’s worth shifting part of your portfolio to inflation-resistant or non-market assets. One example is U.S. savings bonds. While they have lower rates of return than their public exchange counterparts, they’re also more resistant to inflation.
3. Consider Roth Conversions During Low-Tax Windows
Roth IRAs grow tax-free, and qualified withdrawals are tax-free in retirement. While you do need to pay income tax on any amount you convert from a traditional IRA or 401(k), you can minimize this cost by converting during low-tax windows, such as when you first start your retirement and your overall income is lower.
4. Create a Separate Savings Plan for Healthcare and Long-Term Care
It’s also worth planning for long-term care expenses and possible healthcareemergencies. Start by creating separate accounts for these costs, rather than lumping them in with general savings. This makes it easier to keep track of your accumulated savings and ensure the amount meets your healthcare needs.
5. Unlock Trapped Value in Nontraditional Assets
There are also nontraditional assets that may carry trapped value. One example is life insurance policies. If you have a policy you no longer need or that has become too expensive to keep, you can sell it through a life insurance settlement. Instead of surrendering your policy back to your provider, you work with a broker to sell your insurance policy to a third party, getting a higher return in the process.
WHERE LIFE SETTLEMENTS FIT AS A SAFETY VALVE
Life insurance settlements can help bridge the gap between needed and available liquidity without increasing tax risk or losing investment value.
In practice, selling your policy to a third-party offers three key benefits:
- 1. You get four to seven times more cash than surrendering your policy.
- 2. You reduce your monthly premiums.
- 3. You access liquidity without triggering capital gains.
While it’s possible to sell your policy at any time, this is especially beneficial during inflationary years, where selling investments means locking in losses. Life insurance settlements, meanwhile, are largely unaffected by market fluctuations, given their role as long-term investments rather than short-term gains.
FLEXIBILITY IS YOUR BEST DEFENSE
You can’t control inflation, changing healthcare costs or government policy. What you can control is your liquidity strategy, withdrawal sequencing and asset positioning.
By adopting retirement income protection strategies that proactively diversify your income sources, you’re better positioned to survive uncertainty than those who only diversify their investments.
Have a life insurance policy you no longer need or can’t afford? Don’t let it lapse. Instead, see what it could be worth as a life insurance settlement — it may be a stronger financial tool than you think.
Explore your life settlement options with Life Settlement Advisors. See if you qualify today.
