Are you worried about rising inflation and how it could impact your retirement planning? With the Federal Reserve announcing QE3 (printing more money) and our rising federal debt and entitlement obligations (may need to print more money in the future), you’re not alone. Many economists are warning about the dangers of inflation in our future.

So what exactly is the danger? Inflation can hurt your retirement in a couple of ways. The first is that your income may not keep pace with the prices of things you buy. The second is that both stocks and bonds can lose value during periods of rising inflation rates like we saw during the 1970s.

For these reasons, I recently received a question on our financial helpline about how to prepare for this possibility. Here are some options:

Buy a home with a fixed mortgage

If you don’t already own a home, becoming a home owner can help protect you from inflation in two ways. First, unlike rent, your mortgage payments won’t rise each year with inflation. But if you have an adjustable-rate mortgage, your payments can rise with interest rates (which tend to go up with inflation) so you may want to refinance and lock in today’s record low interest rates if you have an adjustable rate mortgage. Second, the burden of that mortgage will decrease each year with inflation as you pay the debt down with dollars that are decreasing in value.

Run a retirement calculation with a higher inflation assumption

In our retirement calculator, you can input your own inflation assumption and use a higher number than the typical 3%. This may require you to increase your retirement saving, invest more aggressively, or retire later to achieve your retirement goals.

See if you can choose a pension payout with a COLA

If you’re fortunate enough to still have a traditional defined-benefit pension plan, see if that pension offers the option of a cost-of-living adjustment. Your payments will be lower in the beginning but they will rise over time with inflation. Just be on the lookout for a cap on that inflation adjustment that could prevent your pension from keeping pace with a high inflation rate.

Over course, none of these steps would do much to protect the value of your investment portfolio from rising inflation. Next week, we’ll look at some investment options that could do well in such a scenario….