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From 2010 to 2019, inflation was low, averaging 1.8 percent annually, prompting the Federal Reserve to lower interest rates. However, things changed in 2022 when inflation surged above 9 percent due to a mix of factors, including pandemic-related stimulus payments, supply chain disruptions, and geopolitical events.

What you should know: Inflation can lead to a cycle of rising wages and prices, a situation the Fed aims to avoid. Despite the risks, the Fed targets a modest two percent inflation rate to prevent deflation, which can stagnate the economy, as seen in Japan’s prolonged economic challenges.

To protect your retirement income from inflation risk, a diversified portfolio is key. Treasury Inflation-Protected Securities (TIPS) and stocks with strong pricing power are just two of many viable options.