How Can You Protect Your Purchasing Power Against Inflation and Higher Taxes?
It's "a tradition unlike any other."
The $1.50 pimento cheese sandwich.
Every year at the Masters, you'll hear TV commentators wax nostalgic about what makes the world's most famous golf tournament unique: the course, the history, the cell phone ban.
And those sandwiches, which, at the very first Masters in 1934, cost just $0.30. If the pimento and cheese had kept pace with the rate of inflation since then, today it would cost $7.50. But the $1.50 price tag has stuck since 2003.
Other than Costco hot dogs ($1.50) and Arizona Iced Tea ($0.99), there aren't many other examples of products whose prices have stayed flat over time. In the past couple of years, we've all had to cope with costs that have risen a little faster than we're used to, not just at the grocery store but at the pump and on our utility bills.
As we discuss on today's show, protecting your nest egg against inflation and other variable costs is an important part of a comprehensive financial plan, especially once you retire.
1. "With oil prices surging and inflation heating up again, I'm worried about my purchasing power. What investments actually protect me during inflationary times?"
The price of oil has risen 70% since the beginning of the year, which, coupled with geopolitical tensions, has caused inflationary ripples across the global economy.
It's worth remembering that while our government and the Federal Reserve usually use policy and interest rate adjustments to keep inflation low, the alternative -- deflation -- isn't really preferable. Many economists believe that when prices fall too far too fast, consumer spending drops as folks wait for rock bottom discounts – which, in turn, lowers corporate earnings and market returns. Deflated real estate prices can also hurt the housing market because potential sellers will hang onto their homes as they wait for prices to rebound.
As far as protecting your purchasing power over time, the most effective hedge has been investing in stocks. Historically, inflation raises costs by about 3% every year. The average market ROI is around 10% annually. In part, that's because the great companies of the world have pricing power: the ability to pass inflated costs onto consumers by raising their prices, which keeps revenue and market value up. Many companies also pay dividends to shareholders that, historically, have also outpaced inflation.
Real estate is another asset that provides protection against inflation. While property values can fluctuate with interest rates, property owners can increase rents to offset their higher costs.
The government also offers specialized bonds, Treasury Inflation-Protected Securities (TIPS), that pay interest based on adjustments to the consumer price index. You could also invest up to $10,000 per year in I-bonds, which reset their interest rates every six months based on the current inflation rate. Despite the names, both of these products do carry some risks around inflation and interest rate hikes, so talk to your advisor before purchasing them on your own.
Finally, when the markets are unsettled, you'll always see pitches for commodities: not just oil futures, but also gold and other precious metals. Again, these investments can have a place in your portfolio, but talk to your advisor, not the salesman on TV asking for your credit card number.
2. "I got a raise this year and I'm worried that I've been bumped into a higher tax bracket. Does that mean all my income is now taxed at this higher rate?"
Over and over recently, we've heard that the U.S. tax code is becoming “simpler."
And, in some ways, it has.
If you're like most folks, you probably took the standard deduction when you filed your taxes this spring. One of the reasons that the government keeps raising that standard deduction is to save filers the hassle of itemizing.
Still, complexities remain.
As far as how your income is taxed, our government uses marginal tax rates. In 2026, there are seven federal tax brackets ranging from 10% to 37%. If a change in your income bumps you into the next bracket, only the income that falls within that higher bracket is taxed at the higher rate.
So, if your gross income was $90,750, you would receive a standard deduction of $16,100, bringing your taxable income down to $74,650.
The first $12,400 of that is taxed at just 10%.
The next $37,999 of income up to $50,400 is taxed at 12%.
Only the remaining $24,250 is taxed at 22%.
Add all that up, and the total federal tax liability would be $11,135, meaning the effective tax rate this person is paying is only 12.3%. So even though their income hit the 22% bracket, their average tax burden is essentially half of that.
In other words ... Don't turn down that raise because of taxes!
But also: prepare to start thinking about taxes a little differently in retirement.
When you're still working, you can always keep working and earning to offset higher tax liability and rising costs.
Once you transition to living off your assets instead of growing them, you'll need a plan to protect your withdrawals from higher income taxes, capital gains taxes, and surcharges to your Medicare premiums that you could have avoided.
You'll also need to be prepared to pay more out of pocket for health care as you age, while also limiting potential estate tax issues for your heirs.
Without a plan that balances your short-term and long-term needs while managing your lifetime tax liability, you could deplete your retirement resources a lot faster than average inflation will. Make an appointment to visit Keen Wealth and let's keep you rolling down the fairway towards your retirement goals.
About Bill
Bill Keen is a financial advisor with over 30 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he focuses on providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to Forbes, U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
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