How Inflation Affects Your Long-Term Financial Goals (and What You Can Do About It)

Inflation, the rise in prices over time, affects more than just what you pay at the grocery store. If you’re planning for major life goals like retirement, education funding, or long-term savings, inflation plays a critical role in how far your money will stretch in the future. Broadly, inflation decreases purchasing power: as prices rise, the same dollar buys less over time, meaning your future goals may cost significantly more than you expect. (FINRA Foundation’s FINRED resources explain the basics of inflation and why understanding it matters for your financial planning) Financial Readiness

Where Inflation Stands in 2025

In 2025, inflation has cooled significantly from the double-digit spikes seen in 2022, but it remains above the Federal Reserve’s long-run target of around 2%. The U.S. annual inflation rate sat near 3.0% in September 2025, up slightly from earlier in the year and still above the Fed’s target, meaning prices are rising faster than many traditional savings tools grow. NerdWallet+1

Economists also expect inflation pressures to ease gradually over the next couple of years, with projections indicating a potential drift toward 2.4% by 2026, but not necessarily returning to the 2% target immediately .JPMorgan

Inflation and the Erosion of Purchasing Power

At a 3% annual inflation rate, the cost of living doubles roughly every 24 years, meaning what costs $100 today might cost around $150 in two decades. That gradual erosion may seem small year-to-year, but over time it can significantly impact long-term goals like retirement savings, college funds, or business expansion plans. Winthrop Partners

For example, if your retirement portfolio grows by 4% annually but inflation runs 3% during the same period, your real return — the return after inflation — is essentially only 1%. This means it will take much more money, time, or both to reach your goals than if inflation were lower or under better control.

Inflation’s Impact on Specific Financial Goals

1. Retirement Planning
Rising prices mean retirees need more income to maintain the same standard of living. Even Social Security’s cost-of-living adjustments (COLA), such as the 2.5% increase in benefits for 2025 may not fully offset inflation’s effects on living expenses like healthcare and housing. AARP+1

Retirement accounts tied heavily to cash or low-yield investments can particularly suffer because their returns may not keep pace with inflation, potentially reducing the real value of savings and increasing the risk of outliving your assets. Bedel Financial

2. Savings and Emergency Funds
Traditional savings accounts often pay interest far below current inflation, meaning money saved in these accounts loses real value over time. This makes it harder to build effective emergency funds or meet future goals without choosing higher-yield or inflation-protected savings vehicles. Investopedia

3. Education and Major Purchases
Whether planning for college costs or buying a home, inflation drives up prices of goods and services over time. This can shift how much you should be saving today to cover goals decades in the future.

Strategies to Protect Long-Term Financial Goals

• Invest for Growth: Allocating a portion of your portfolio to assets that historically outpace inflation, such as stocks, real estate, or inflation-linked securities, helps preserve purchasing power over long horizons.

• Use Inflation-Protected Products: Consider Treasury Inflation-Protected Securities (TIPS) or Series I Savings Bonds, which adjust returns with inflation, as part of a diversified strategy.

• Review Asset Allocation: A financial plan that periodically adjusts for changes in inflation expectations and market conditions can help keep your goals aligned with reality.

• Budget with Inflation in Mind: Anticipate rising costs in categories like healthcare, housing, and education when setting savings targets and cash flow plans.

Why Addressing Inflation Matters for Your Financial Planning

Inflation may seem like a macroeconomic concept, but it has very real, long-term implications on your personal financial strategy. Even moderate inflation reduces what your money can buy in the future, making it harder to reach life goals if your financial plan doesn’t account for it. By understanding inflation trends, such as the near-3% U.S. inflation rate seen in 2025 and proactively adjusting your investment and savings approach, you can help guard your long-term objectives against eroding purchasing power. NerdWallet

Sources:

FINRED / U.S. Learning (FINRA Foundation): https://finred.usalearning.gov/Money/Inflation

NerdWallet (Inflation overview and trends): https://www.nerdwallet.com/investing/learn/inflation

J.P. Morgan Asset Management (Inflation outlook): https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/market-updates/notes-on-the-week-ahead/the-inflation-outlook/

AARP (Social Security COLA and retirement updates): https://www.aarp.org/money/retirement/changes-2025/

Investopedia (Savings, inflation, and purchasing power): https://www.investopedia.com

Bedel Financial Consulting Group (Inflation and retirement planning): https://www.bedelfinancial.com/inflation-s-impact-on-retirement-savings

Winthrop Partners (Inflation and long-term planning): https://winthroppartners.com/navigating-inflation-2025-resilient-retirement-portfolio/