Periods of high inflation impact every aspect of our lives, but that doesn’t mean you have to sacrifice to make ends meet. If you’re struggling with rising prices and are concerned about how the high inflation rate might affect your financial plan, this article is for you.

Below, we’ll discuss how to beat inflation and strategies for investing during these periods.

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What’s inflation?

Inflation is an increase in prices across industries that reduces your money’s buying power. This occurs when demand outpaces supply, goods’ production costs rise, or both. The U.S. government uses several methods to keep rates between 2–3%, but they’re not always successful.

For instance, to match the purchasing power of one dollar in the year 2000, you’d have to spend $1.86 in 2025. That means a $186,000 salary is equivalent to earning $100,000 in 2000.

This affects both your existing spending habits and your savings. If your wages don’t meet or exceed the inflation rate, you’ll spend more of your paycheck on daily essentials than you would have years ago. For example, the average price of milk in 2000 was $2.78. Today, you’ll pay over $4.00 for the same gallon.

This issue only compounds for retirement savings. If you saved just enough to be comfortable in 2000, you’ll likely erode your savings faster than expected due to inflation.

So, how do you combat inflation as an individual and ensure you have enough for retirement?

The answer is to make sure that your investment earnings outpace inflation.

How to protect your savings from inflation: 4 defensive assets

If you keep your extra cash in a checking or low-yield savings account, it will lose purchasing power over time. That’s because the rate of inflation is greater than the small amount of interest you’re earning.

To avoid this, you’ll need to invest money in financial products that could potentially offer a higher return. Some options — like stocks, commodities, options, and venture capital — are riskier but have more growth potential.

On the other hand, safer products like the following offer consistent returns and can help serve as solid hedges against inflation, making them ideal investments for retirement.

High-yield savings accounts

Most standard savings accounts offer low interest returns, often less than 1% annually, meaning high inflation can quickly reduce your purchasing power. High-yield savings accounts offer interest rates that often keep pace with or beat inflation, securing your funds for the future. However, if the inflation rate exceeds the interest rate on the account, there’s a real chance that your money will lose value.

Certificates of deposit

Certificates of deposit (CDs) are savings accounts you open with a bank, credit union, or other financial institution. When you invest in one, you agree to leave funds in the account for a specified period, often 1–5 years. In exchange, the provider will return your money with earned interest at the end of the term.

The FDIC insures CDs up to $250,000 per depositor, per institution, so they’re incredibly safe investments.

When the inflation rate is high, the Federal Reserve often raises interest rates, leading to higher CD yields. But traditional CDs don’t let you adjust your rate during the term, so your funds are locked in even as interest rises. And if you want to take out your money early to reinvest in a better-performing product, banks typically charge an early withdrawal penalty.

However, if the inflation rate is higher than the CD’s interest rate, the CD’s value will decrease in real terms, meaning it won’t keep up with the rising cost of goods and services.

I-bonds

I-bonds are U.S. Treasury instruments that adjust for inflation. They have two interest rates: fixed and variable. The Treasury announces the fixed rate twice a year, and earnings compound semiannually.

To account for inflation, the Treasury pairs this with a variable interest rate that they adjust every six months. The variable rate syncs with the Consumer Price Index, one of the main ways the government tracks inflation.

So while the fixed rate component of the I Bond may not always outpace inflation, the variable rate ensures that the overall return of the bond will at least keep pace with inflation and potentially exceed it.

Deferred fixed annuities

Annuities are contracts with insurance companies. You invest once or make multiple contributions to the provider, and they send you regular payments after the account matures.

Deferred annuities are long-term insurance products that offer tax-deferred growth and can be structured to provide a guaranteed income later in life. They have two phases:

• Accumulation phase: This is the period of the contract when your money grows.
• Payout phase: Once your annuity matures, you can receive monthly payments, a lump sum, or reinvest the funds.

However, fixed annuity payments don’t always beat inflation as the income they provide doesn’t increase with inflation.

Some annuities — like Gainbridge’s SteadyPace™ annuity — offer features that help guard against inflation’s long-term impact by locking in steady returns. And insurance companies and state guaranty associations ensure that annuities are safe investments for individual investors.

Actionable tips to combat inflation in everyday life

In addition to choosing the right investment for your future, these tips can help protect you against inflation.

Track and reduce discretionary spending

One of the best ways to fight inflation is to reduce discretionary expenses. That means scaling back on things like dining out, subscription services (especially unused ones), and non-essential shopping.

Use a free budgeting app or review your bank statements to see where your money's going. The apps will help you pinpoint areas where you can trim costs.

Pay off high-interest, variable-rate debt

High-interest debt, like credit cards and certain loans, can quickly erode your savings, especially if you only make minimum payments. Few investments will outpace your credit card interest rate without significant risk.

So, if possible, pay off these accounts by taking out a low-interest loan or settling the balances outright.

Adjust retirement withdrawal rates during high-inflation years

If you’ve already started withdrawing from retirement accounts like IRAs and 401(k)s, you can reduce your distribution amounts when inflation rates are high. This leaves more money in your accounts to earn interest, which can combat the potential losses you’d face while taking normal distributions.

Building a long-term inflation-resistant plan

Learning how to invest during inflation can secure your financial future. Layering income from Social Security, dividends, and fixed annuities like Gainbridge’s SteadyPace™ reduces risk and creates a more reliable income.

It’s also possible to profit from inflation, although this involves making riskier investments. Real estate, commodities, and stocks may produce better returns during inflation, but your principal is more vulnerable.

Diversifying your portfolio with secure and high-earning potential investments is the best way to balance safety with growth during inflation spikes.

Secure your financial future with Gainbridge

You can’t control inflation, but you can prepare for it. Gainbridge offers annuities that provide steady growth without hidden fees or charges. Learn how annuities can protect the purchasing power of your savings accounts.

This article is for informational and educational purposes only. It is not intended to provide, and should not be interpreted as, individualized investment, legal, or tax advice. The Gainbridge® digital platform provides informational and educational resources intended only for self-directed purposes. Annuities are issued by Gainbridge Life Insurance Company, located in Zionsville, Indiana. Guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company.