Statistics indicate that the average life expectancy is longer than it used to be, but empirically we see this every day among elderly people who have lived much longer than they probably expected. This phenomenon spotlights a particular component of retirement planning that was not as significant in the past as it is now: long-term inflation.

While we’ve not experienced annual inflation rates this century as high as the latter part of the 20th century, inflation can balloon at any time. But what can be even more devastating to a retiree on a fixed income is cumulative inflation over time. It’s also important to recognize that specific consumer product inflation rates can differ substantially from the averages.

For example, according to the Bureau of Labor Statistics, the cost (not always the price a consumer pays) of an oil change in 2000 was about $20. However, motor oil, coolant and fluids have experienced an average inflation rate of 5.66 percent per year – so in 2019 the cost of providing an oil change was about $56.89. That’s a 184.45 percent increase in less than 20 years for a common household expense during a normal retirement timeframe.

To build a portfolio designed to provide inflation-adjusted income throughout a long retirement, consider the following tactics.

Optimize Your Social Security Benefits

Social Security benefits receive periodic cost of living adjustments (COLA) based on the Consumer Price Index (CPI), which is a weighted average of prices of common goods and services purchased by all urban consumers. However, retirees spend more of their household income on goods and services that experience higher levels of inflation, such as medical services. Therefore, Social Security benefit increases might not keep up with a retiree’s actual cost of living – especially over time.

That’s why it’s important to consider inflation in order to optimize your Social Security benefits. In other words, except for people in exceedingly poor health (expected to die within a few years) or in dire circumstances, it’s a good idea to delay starting Social Security benefits as long as you can. If you can wait until age 70, benefits will increase by as much as 8 percent each 12-month period past your full retirement age. Delaying not only increases the level of income you’ll receive each month, but it also gives you more time to save money for retirement and allows your investments more time to grow.

Inflation-Aligned Investments

Another way to inflation-proof your retirement portfolio is to allocate a portion of assets to investments that tend to increase at the same pace as inflation. The following are some options you might want to consider.

• Series I Savings Bond – The I-Bond, guaranteed by the federal ­government, helps protect an investor from creeping inflation in a couple of ways. First, the I-Bond credits the holder’s account with a fixed interest rate plus the annualized inflation rate from the preceding six months. Second, the account value does not drop when prices fall.
• TIPS – Treasury Inflation-Protected Securities (TIPS) are marketable securities whose principal increases and decreases in tandem with the inflation rate (adjusted every six months). However, the coupon rate is fixed, so payouts vary based only on the inflation-adjusted principal. Upon maturity, the investor receives the greater of the adjusted principal or the original principal.
• CIPS – Corporate Inflation Protected Securities (CIPS) are similar to TIPS, but they invest in corporate bonds and typically pay a higher yield that combines a fixed payout plus the variable CPI rate. Unlike TIPS, they are not guaranteed by the U.S. government but are backed by the financial strength of the issuing company.
• REITS – A Real Estate Investment Trust (REIT) pays out reliable dividend income that tends to rise with inflation. REITS own or finance a diversified portfolio of income-producing real estate, such as office buildings, apartment buildings, warehouses, retail centers or hotels. REIT dividends have outpaced inflation in all but two of the past 20 years, according to the National Association of Real Estate Investment Trusts.
• IPA – With an inflation-protected annuity (IPA), initial income payouts are low but rise over time to align with long-term inflation, based on a formula linked to the CPI. A differentiating benefit of an IPA is that it offers issuer-guaranteed income for life, so the retiree doesn’t have to worry about reinvesting assets during later stages of retirement.

It is a good idea to work with a financial advisor to incorporate inflation-resistant investments for your retirement portfolio based on your individual objectives, tolerance for risk and timeline.