Seniors who depend on a fixed income to fund their retirement are vulnerable to a threat that hasn’t been significant in recent years: inflation.

Years of federal government stimulus and the promise of a boost in spending are stoking fears that high inflation will reappear. Baby boomers are sure to remember the high inflation of the 1970s and its devastating effects. Many market analysts believe inflation is going to rise again, but the severity of the rise is uncertain.

The effects of inflation can have a profound impact on seniors' purchasing power. As costs of goods increase, those managing their retirement on a fixed income often erode savings by trying to meet their needs. Even relatively low inflation can cause significant reductions in spending power over long periods of retirement. For example, because of the cumulative impact of inflation, today you would need $1,187 to match what $1,000 could buy in March 2007.

What’s more, certain gauges of inflation are significantly higher in categories that most impact older people. The costs of medical care have risen significantly faster than the rate of inflation. Specifically, medical care commodities rose 3.9 percent and medical care services rose 3.4 percent in March 2017 on an annual basis.

Since seniors are living much longer in retirement, developing a strategy for spending, saving and investing that will mitigate the effects of inflation is crucial.

Factor Inflation Into Your Savings Plan

If you’re helping a senior manage their finances, you probably have experienced an income source that is adjusted for inflation. Known as a cost of living adjustment (COLA), Social Security benefits are indexed to inflation every year. This adjustment is minimal, however, and when earnings do not keep pace with the cost of goods, quality of life can be impacted.

The Consumer Price Index (CPI) published by the Bureau of Labor Statistics is a measure of the average change in prices paid by urban consumers for a market basket of goods and services, such as food, medical care and housing. But for seniors who have paid off their mortgages, don’t drive and whose children are grown, their rate of inflation is likely to be significantly different from the average American. This is especially true for those who have high medical expenses, which is common among older individuals.

For those already in retirement and those still in the planning stages, figuring out your personal rate of inflation starts with tracking spending. Either on paper or using software such as Quicken, track your expenditures by category. The consumer price index divides the consumer basket into eight major categories: food and beverages; housing; apparel; transportation; medical care; recreation; education and communication; and other goods and services. You can figure out what percentage of your expenses fall into each of these categories to determine your own inflation rate.

Use an online inflation calculator to predict the estimated impact that rising costs will have on future purchasing power. This figure will be important in establishing a budget and savings plan to meet your needs. If you have already retired, you might be curious to find out what the spending power of your fixed pension is today compared with when you retired. By entering the amount and your date of retirement into the Bureau of Labor Statistics inflation calculator you can see how inflation has impacted your income.

Inflation-Protected Investments

The best protection against inflation is continuing to work, because salary-based income is more consistently adjusted to reflect the cost of living. If you or your loved one hasn’t started collecting Social Security, consider delaying that action. Social Security benefits can begin at age 62, but waiting until age 70 will boost benefit amounts by as much as 8 percent a year.

This is important because the Social Security Administration (SSA) adjusts its payments for inflation each year. If you delay collecting Social Security, you are guaranteeing yourself a larger inflation-adjusted monthly benefit check in the future.

If you’re helping a loved one claim Social Security benefits, consider when to begin collecting carefully and weigh the options.

Your retirement portfolio should include inflation-protected investments to better safeguard savings. Some investors will remember the impact of the Great Inflation of the 1970s and seek out additional hedges to protect themselves. Two conservative choices are series I savings bonds and Treasury inflation-protected securities, both backed by the U.S. government.

Series I Savings Bonds

Investors with modest portfolios might benefit from buying savings bonds with inflation protection. You can buy I series savings bonds from the U.S. Treasury for as little as $25, but there’s a limit of $10,000 per buyer per calendar year.

Interest on an I bond consists of two rates: a fixed rate for the life of the bond and a variable rate that is adjusted for inflation twice a year. The U.S. Treasury no longer sells paper savings bonds, so buyers must buy them through a TreasuryDirect account. You can learn more about I bonds and the TreasuryDirect program on the TreasuryDirect website.

Treasury Inflation-Protected Securities

The government offers bonds that are adjusted to the Consumer Price Index called Treasury inflation-protected securities, or TIPS. Collin Martin, a fixed income strategist with Schwab Center for Financial Research, says there’s no formula for how much inflation protection should be built into a retirement portfolio because each person’s situation is different. “Buying individual TIPS can be helpful for set time horizons and planning for life events,” Martin says.

As their name implies, TIPS’ principal adjusts with inflation. When TIPS mature, investors receive either the adjusted principal or the original principal, whichever is higher. In addition, investors receive larger interest payments from the adjusted principal if inflation rises. Although this feature can cut both ways: interest payments are smaller if there’s deflation.

TIPS can be purchased through the TreasuryDirect website, via your income tax return, or through a bank or broker.

Others may prefer to delegate the management of their bond portfolios by buying mutual funds that invest in TIPS. Charles Schwab, Fidelity, Vanguard and others sell low-cost mutual funds that invest in these inflation-protected bonds. Martin counsels that the same rules that apply to bond investing also apply to TIPS.

Devising a Protection Plan

In addition to the strategies mentioned above, consumers can purchase inflation riders on many other financial products, such as annuities, life insurance policies, and long-term care insurance policies. Whether you’re still saving or you’re focused on making these funds last, it can be challenging to devise a retirement plan that meets your needs and is capable of weathering market fluctuations over the long term. Consider working with a professional to help you navigate these financial issues.

Read: Building Your Retirement Planning Team