Beating Inflation: Strategies for Washington Public Employees

"My pension doesn't stretch as far as it used to."

This concern has become increasingly common among Washington public employees. After decades of service to state or local government, many retirees are discovering that today's economic reality requires a more comprehensive approach to retirement planning.

Here's the reality: Your Washington public employee pension is valuable, but in today's inflationary environment, it's just one piece of the puzzle. Let's explore what's working for public sector retirees facing inflation.

Understanding Inflation's Impact on Your Retirement
First, some positive news: Social Security's 2025 Cost-of-Living Adjustment (COLA) is giving retirees a 2.5% boost [1]. Similarly, the Department of Retirement Systems (DRS) provided a 3% COLA for Washington public pension recipients in 2024 [2].

However, relying solely on these COLAs often isn't sufficient to maintain purchasing power, particularly when healthcare costs and housing expenses frequently outpace official inflation rates.

The Multi-Shield Strategy for Inflation Protection
Washington public employees who are successfully navigating inflation typically employ a multi-layered approach:

Shield 1: Strategic Income Stacking
The "Layer Cake" approach creates resilience against inflation:
·       Base Layer: Washington public pension (PERS, TRS, LEOFF, or other systems)
·       Middle Layer: Social Security benefits
·       Top Layer: Strategic investments specifically designed to combat inflation

This structure works effectively because:
·       Each income source serves a specific purpose
·       You're not overly dependent on any single income stream
·       You can adjust certain layers as inflation changes

Shield 2: The Modern Investment Approach
The traditional 60/40 portfolio may not provide adequate inflation protection. A more effective approach for public employees involves:
·       Mapping out your specific cash flow needs from your portfolio
·       Holding 1-2 years of expenses in cash or cash equivalents earning competitive interest
·       Allocating 2-4 years of expenses to short-term, high-quality bonds
·       Investing the remainder in equities for long-term inflation protection

This time-segmented approach provides both security and growth potential.

Practical Inflation Protection Strategies
The Healthcare Shield
Healthcare costs continue to rise faster than general inflation. Washington public employees are addressing this challenge through:
·       Maximizing HSA contributions while still working (if eligible through a qualifying high-deductible health plan)
·       Selecting optimal Medicare supplement plans that complement PEBB benefits
·       Building dedicated healthcare emergency funds separate from general savings
The Housing Defense
Housing typically represents a significant retirement expense. Effective strategies include:
·       Relocating to lower-cost areas within Washington state
·       Making strategic downsizing decisions before or during early retirement
·       Accelerating mortgage payoff before retirement
·       Exploring property tax exemption programs available to seniors in Washington
The Tax Efficiency Strategy
It's not just about your gross income—it's about how much you keep after taxes. Successful approaches include:
·       Using Roth conversions strategically during lower-income years
·       Planning withdrawal sequences to minimize tax impact
·       Utilizing tax-loss harvesting opportunities in taxable accounts
The Flexible Spending Framework
Creating flexibility in your spending allows you to adapt to inflation without sacrificing quality of life:
1.        Separate expenses into two categories:
o   Essential expenses (utilities, food, healthcare, housing)
o   Discretionary spending (travel, dining, entertainment, gifts)
2.        Build adaptability into your budget by:
o   Adjusting discretionary spending during high inflation periods
o   Keeping essential expenses as efficient as possible
o   Maintaining multiple income sources for flexibility

Your Washington public employee pension provides a valuable foundation for retirement security. However, in the current inflationary environment, complementary strategies are essential for maintaining purchasing power.

The good news is that with thoughtful planning, Washington public employees can create retirement systems that successfully withstand inflation pressures. By implementing these multi-layered approaches, you can focus more on enjoying retirement and less on worrying about rising prices.

Sources
​[1] https://www.ssa.gov/cola/
[2] https://www.drs.wa.gov/life/retired/cola/