Most retirement conversations focus on accumulation: how much you saved, how your portfolio performed, what your balance looks like on the day you stop working. Fewer focus on what happens after that, and specifically what inflation does to your money over the 20 to 30 years you spend drawing it down.
On Martha's Vineyard, this is not an abstract concern. The cost of living here is high and it does not trend downward. Groceries, utilities, healthcare, property taxes. The things that make up everyday life on the island have all gotten more expensive over the past decade, and there is no real reason to expect that to change.
That is the inflation problem in plain terms. A dollar today is not the same dollar in fifteen years. If your retirement income plan does not account for that, you are not planning for retirement. You are planning for the first few years of it.
Why inflation is a retirement problem, not just a market problem
When people think about retirement risk, they usually think about market volatility. A bad year right before or after they retire. That is a real concern and worth planning around. But inflation is a slower version of the same problem, and in some ways more dangerous because it does not feel urgent until it has already done real damage.
At 3% annual inflation, roughly the long-run historical average in the United States, the purchasing power of $100,000 in cash falls to about $74,000 over ten years. If inflation runs hotter than that, the erosion is faster. A retiree holding too much of their wealth in low-yield cash or savings accounts is losing ground every year, regardless of what the market does.
Purchasing power over time
What $100,000 is worth in real terms at different inflation rates
For illustration purposes only. Based on compound inflation calculation. Actual inflation varies and is not guaranteed. This is not a projection of any specific investment.
This matters most for retirees who hold large cash positions because they think they are being conservative. There is a version of "safe" that is not actually safe. A savings account earning 0.5% when inflation is running at 3% is one of them.
"Doing nothing with cash has a cost. It just does not show up on a brokerage statement."
The cost of doing nothing with cash
Holding cash feels safe. It is safe from market swings. But it is not safe from inflation, and in retirement, inflation is the longer, slower problem.
One of the first questions we ask new clients at Vineyard Wealth Group is: how much of your retirement portfolio is sitting in cash or cash-equivalent accounts, and what is that money earning? For a lot of people, particularly those who spent their careers as careful savers, the answer is a surprisingly large share of the total, earning a rate that does not keep pace with rising prices.
The tension we help clients work through is real. You need enough accessible cash to cover near-term expenses without selling investments at the wrong time. But you do not want so much sitting idle that inflation quietly does what a bad market year would do, just more slowly.
The answer is not always less cash. It is smarter cash.
Options that do more work than a savings account
When we talk about moving beyond cash, we are not talking about risky investments. We are talking about places where money can earn a meaningfully better return while staying relatively accessible and low-risk. Three categories are worth understanding.
Money market funds
Money market funds invest in short-term, high-quality debt. They are not FDIC-insured the way a bank account is, but they are considered very low risk and typically offer significantly better yields than a traditional savings account, particularly when interest rates are elevated. For cash you need accessible within the next year, a money market fund is usually a more productive place to keep it than a standard checking or savings account.
Treasury bonds and brokered CDs
For cash you will not need for two to four years, short- to intermediate-term Treasury bonds and brokered certificates of deposit can offer higher yields with predictable maturity schedules. Treasuries are backed by the full faith and credit of the U.S. government. Brokered CDs, available through brokerage accounts rather than directly through a bank, often offer better rates and can be sold on the secondary market if needed before maturity, though at current market value rather than face value.
Treasury Inflation-Protected Securities (TIPS)
TIPS are a specific type of Treasury security built to address the inflation problem directly. The principal value adjusts with the Consumer Price Index, so as inflation rises, the bond's value and interest payments rise with it. For retirees who are concerned about purchasing power eroding over a long retirement, TIPS offer a structural hedge against inflation that a standard bond does not provide.
How we build a cash bridge at Vineyard Wealth Group
Here is the actual framework we use with clients. It starts not with the portfolio, but with the income gap.
Every retirement plan we build begins by identifying all guaranteed income sources: Social Security, pensions, rental income, annuities. Once we know what is coming in reliably each month, we calculate the gap between that income and the client's actual spending needs. That gap is what the portfolio has to cover.
From there, here is how we structure the cash:
The Vineyard Wealth Group cash bridge
How we layer cash and investments to cover 3 to 5 years of income needs
Year one: short-term liquid. We keep roughly one year of the client's portfolio income need in money market funds or equivalent short-term liquid options. This covers expenses without requiring any investment sales, regardless of what markets are doing that year.
Years two through four: intermediate fixed income. The next two to four years of income need sit in Treasury bonds, brokered CDs, and potentially TIPS. These mature on a rolling schedule and replenish the liquid bucket as withdrawals are made. It creates a predictable pipeline of cash moving toward spending.
The bridge effect. Together, those two layers give a retiree three to five years of covered expenses without touching the growth portfolio. That is the bridge. It spans a market downturn long enough for the long-term portfolio to recover without forcing a sale at the wrong time. A portfolio that does not have to sell during a downturn is one that can recover from it.
Years five and beyond: the growth portfolio. Everything beyond the bridge is invested for long-term growth. Equities, real assets, and other longer-horizon positions. The goal is not income. It is outpacing inflation over the long run so the purchasing power of the overall portfolio does not erode.
"The bridge does not just protect income. It protects the growth portfolio by giving it time, and time is the most valuable thing in a long-term investment strategy."
Why long-term growth still matters
Here is the thing about being conservative in retirement. If conservative means holding everything in cash and low-yield bonds, it is not actually conservative. It is just a slower version of the same problem.
A portfolio that does not grow over a 25-year retirement will lose purchasing power to inflation even if it never loses a dollar in nominal terms. At 3% inflation, a $1 million portfolio earning nothing is worth roughly $480,000 in today's dollars by the time a 65-year-old reaches 85. The number on the statement looks the same. The buying power is cut almost in half.
The cash bridge framework matters because it creates the conditions to hold long-term growth assets without being forced to sell them at the wrong time. You are not choosing between safety and growth. You are separating the part of your portfolio that needs to be safe right now from the part that has time to do its job.
Growth vs. cash over 25 years
$500,000 invested, inflation-adjusted value comparison
For illustration purposes only. Growth portfolio assumes 7% gross annual return and 3% annual inflation. Cash assumes 1% yield and 3% annual inflation. These are hypothetical scenarios, not projections. Past performance does not guarantee future results. All investing involves risk including possible loss of principal.
A lot of people on Martha's Vineyard have built wealth through real estate and savings rather than diversified investment portfolios. The impulse to be careful by holding cash is completely understandable. But careful and static are not the same thing, and in a 25- or 30-year retirement they can lead to very different outcomes.
The bottom line
Inflation moves slowly enough that it rarely feels urgent, which is exactly what makes it dangerous. The dollar you set aside today will buy less next year, and less the year after that. If your retirement plan does not have a specific answer to that erosion, not a general one but a real, structured one, it is leaving something important unaddressed.
At Vineyard Wealth Group, we start every retirement income conversation by identifying the gap between guaranteed income and actual spending needs. From there, we build the bridge: one year of liquid reserves, two to four years of intermediate income, and a long-term growth portfolio that can recover from downturns because it does not have to fund them.
It is not a complicated framework. Getting the structure right, knowing how much to keep accessible, where to put the intermediate layer, and how much to leave working for the long run, is the kind of planning that makes retirement income last.
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This article is for educational purposes only and does not constitute investment, tax, or legal advice. The information presented here reflects general financial planning concepts and may not apply to your individual situation. All investing involves risk, including the possible loss of principal. Past performance does not guarantee future results. The hypothetical illustrations in this article are not projections of any specific investment or strategy.
Vineyard Wealth Group, LLC is a fee-only registered investment adviser registered with the Commonwealth of Massachusetts (CRD #330619). Registration does not imply a certain level of skill or training. For a full description of our services, fees, and potential conflicts of interest, please review our Form ADV and all applicable disclosures at vineyardwealthgroup.com/disclosures.
