Today’s retirement portfolios need a new inflation playbook

Real assets should become a strategic inflation hedge in retirement portfolios because stocks and bonds are less reliable in a more volatile inflation regime.

• Cohen & Steers forecasts U.S. consumer inflation to average 3.0% annually over the next 10 years, versus 1.6% in the previous cycle and the Federal Reserve’s 2.0% long-term target.
• The authors describe a shift from an era of commodity abundance to scarcity, with supply shocks linked to the 2021 pandemic, the 2023 Ukraine war, 2025 tariffs and the 2026 Middle East war; actual inflation exceeded market-implied breakevens by 2.05% annually over the period discussed.
• A blend of real estate securities, listed infrastructure, commodities and natural resource equities can diversify stocks and bonds because its cash flows are linked directly or indirectly to inflation and scarcity.
• Commodities can capture scarcity premia, resource producers can pass higher input costs to customers, and leases and infrastructure contracts often include inflation escalators; TIPS provide inflation protection but can lose value when real rates rise sharply, as in 2022.
• Target-date funds generally have limited exposure to inflation-sensitive assets, while a traditional 60/40 portfolio has a negative inflation beta of -0.9%, increasing the risk that an early-retirement inflation shock accelerates withdrawals and depletes savings.

Takeaway: Investors approaching or entering retirement should retain stocks and bonds but consider a strategic allocation to diversified real assets to improve inflation resilience, purchasing-power protection and portfolio diversification, while recognizing that TIPS and real assets also carry interest-rate and market risks.