How much should you budget for cost-of-living increases and inflation in retirement? There is no single percentage that works for everyone, but your plan should account for expenses rising throughout a retirement that could last 20 to 30 years or longer.
As a starting point, consider modelling general living expenses with approximately 2.5% to 3% annual inflation. You should also pressure-test the plan using higher inflation scenarios, such as 4% or 5%, particularly for healthcare, housing, insurance, groceries, utilities, and other essential expenses.
For example, $60,000 of annual spending would increase to approximately $80,600 after ten years with 3% annual inflation. After 20 years, the same lifestyle would cost about $108,400 annually. The Bureau of Labor Statistics Consumer Price Index tracks how consumer prices change over time, but your personal inflation rate will depend on what you actually buy.
Retirement is difficult to reverse, and most people do not want to return to work after leaving their careers. The risk becomes especially serious when prices rise while the market falls during the first few years of retirement. Higher expenses combined with portfolio losses can force larger withdrawals and create lasting damage through sequence-of-returns risk.
Do not assume Social Security will offset every increase in your personal expenses. Although benefits receive annual cost-of-living adjustments, the adjustment is based on a government inflation measure and may not match changes in your healthcare, housing, or lifestyle costs. The Social Security COLA for 2026 is 2.8%, according to the Social Security Administration.
Build inflation into your retirement projections, maintain an appropriate emergency or income reserve, and test whether your savings can withstand both rising expenses and poor early investment returns. Review the assumptions annually because inflation, markets, and your spending will continue to change.
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