"In retirement, the very goods and services we need as we age increase much faster than the normal inflation rate," Lee explains. "Health care, for example. The flat-screen TV and the new computer have come down in price, but the costs of medication and tests have increased."
Hedging your bets by boosting inflation expectations can help save you from sinking into a huge financial hole. Take that $50,000 you spend today. If prices rise 4 percent a year instead of 3 percent, you will need $162,000 to get by in 30 years.
Thankfully, you don't have to be a math whiz to run the numbers to see where you'd stand under different inflation scenarios. Bankrate's online retirement-planning calculator allows you to factor in different rates of inflation when setting savings targets.
Effects of inflation on someone who lives on $60,000 a year
Source: CCH Financial Planning ToolKit
Hedges against inflationReal estate has long been touted as a great inflation hedge. Trouble is, you still have to live somewhere in retirement. You may be able to downsize or relocate, but Kaye cautions against viewing your home as a fool-proof inflation guard. "Real estate has gone up about 3 percent a year," he adds. "It's not nearly as much as people think."
Investing in commodities, such as oil or metals, is a way to safeguard against inflation because these goods are limited and therefore will grow in value. Kaye recommends diversifying against risk by buying a diversified-index fund, such as PIMCO Real Asset Fund, which isn't focused on any single commodity.
Treasury Inflation-Protected Securities -- or TIPS -- are government-backed bonds that are guaranteed to beat inflation. You can buy TIPS from the Treasury Department or though a mutual fund company. But be aware that you'll owe taxes on interest, so TIPS may be best suited for a tax-favored account.