Pension & 403(b) planning resources

Inflation & Purchasing Power

Your Pension Income May Stay the Same. What It Buys Will Not.

Many state pension systems limit cost-of-living adjustments (COLAs), which can reduce the purchasing power of a fixed monthly pension benefit over time. See how long-term inflation could affect your future pension income—and how a district 403(b) may help you build additional retirement resources.

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Historical Inflation vs. Pension Buying Power

Illustrative 20-Year Monthly Income Example Using Historical CPI Data

Monthly Income / Cost of Living Years in Retirement

Historical inflation compared with a hypothetical pension and combined pension plus 403(b) income From retirement year 0 through year 20, actual CPI-U annual averages from 2004 through 2024 raise the monthly cost of maintaining the same purchasing power from $3,000 to $4,982. A hypothetical pension with a 2 percent annual cost-of-living adjustment reaches $4,458 per month. An illustrative combined-income path adds a level $481 monthly 403(b) withdrawal and reaches $4,939 per month. $3,000 $3,500 $4,000 $4,500 $5,000 0 5 10 15 20 Cost of Living Pension + 403(b) Pension Only

Years in Retirement

Illustrative assumptions

Starting Pension
$3,000/mo
Pension COLA
2%
403(b) Contribution
$250/mo for 20 years
403(b) Return Before Retirement
6% hypothetical
403(b) Balance at Retirement
Approximately $115,510
403(b) Retirement Withdrawal
Approximately $481/mo for 20 years
Historical Inflation
BLS CPI-U, 2004–2024

Hypothetical 6% annual return before retirement. Not a forecast or guarantee.

Illustrative example only. Historical inflation is based on U.S. CPI-U data from the Bureau of Labor Statistics. The pension illustration assumes a hypothetical $3,000 monthly starting benefit with a 2% annual COLA. The 403(b) illustration assumes $250 monthly contributions for 20 years and a hypothetical 6% annual return before retirement, followed by level withdrawals over 20 years with no investment return assumed during the withdrawal period. Actual pension provisions, contributions, fees, investment returns, taxes, withdrawals, and retirement outcomes will vary.

The Three Inflation Drivers

Look Beyond Your Initial Pension Payout.

A fixed pension payment, your baseline estimate, offers only a partial view. Your long-term purchasing power depends on how your state system designs cost-of-living adjustments over many decades.

01 / Baseline

State Baseline

Start with your official state pension calculation based on your target retirement age and payment options.

02 / Legislation

State COLA Provisions

Evaluate legislative caps, delayed eligibility periods, or conditional funding rules that apply to your state tier.

03 / Timeline

Multi-Decade Horizon

Model how modest inflation rates compound over 20 to 30 years to identify potential income gaps early.

See how a district 403(b) can help you build additional retirement assets

Retirement Timeline Analysis

How Inflation Compounds Over Your Retirement Years.

Living expenses are not fixed, and pension benefits may not increase at the same pace as inflation. A complete review can help illustrate how purchasing power may shift from the first year of retirement through year twenty-five and beyond.

  1. Step 1

    First Year (Baseline)

    This is when your starting pension benefit is established based on factors such as retirement age, service credit, and payment elections. It becomes the starting point for evaluating how much purchasing power that income may provide over time.

  2. Step 2

    Mid-Retirement Years (Years 2–15)

    As retirement continues, spending needs may change. Healthcare, long-term care, housing, and everyday living expenses can all become increasingly important when evaluating whether retirement income is keeping pace.

  3. Step 3

    Later Retirement Years (Years 15–25+)

    Over longer retirement periods, inflation can continue to increase the cost of goods and services. If pension COLA provisions do not keep pace, purchasing power may decline over time. A district 403(b) account may provide additional retirement resources to consider as part of that broader income picture.

Questions for your plan

What should you verify?

  • Does your state pension system provide a COLA, and what legislative caps or plan provisions apply to your tier?
  • When do adjustments begin, and are they automatic or dependent on plan rules, funding, or legislative action?
  • Which retirement expenses, such as healthcare or long-term care, could place additional pressure on your future purchasing power?
  • What district 403(b) options are available, and how could a 403(b) account fit into your broader retirement-income strategy?

Next step

Turn a projection into a review

See how time and assumptions can affect your retirement-income picture, positively or negatively.

Reviewing your district retirement options helps you identify key pension provisions, inflation assumptions, and expense gaps years before you retire.

Schedule a Retirement Review