You can save well for retirement, manage your IRA or 401(k) carefully, and even adjust spending downward when markets don’t cooperate. But there’s still a lurking threat to your retirement security you should know about — inflation.  Even when prices rise modestly from year to year, the cumulative effect of inflation can significantly erode your buying power over time. That’s why inflation protection is key.

You may have heard that Social Security benefits come with built-in inflation protection. That’s true, but only to a degree. See, Social Security benefits have inflation protection in theory. In practice, those monthly checks don’t necessarily keep up with rising costs the way they should.

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How Social Security COLAs are calculated

Social Security benefits can increase each year through a cost-of-living adjustment, or COLA. COLAs are based on changes to an index called the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W. The CPI-W tracks the costs incurred by households where the primary earner has an hourly, clerical, or wage-earning job. The index tracks a host of common expense categories, from food to shelter to transportation.

The Social Security Administration compares the average CPI-W reading from the third quarter of each year with the same period from the previous year. If there’s an increase, benefits get a COLA. If there’s a decrease or the CPI-W is flat, there’s no COLA, but there’s also no decrease to Social Security checks.

This system is supposed to ensure that when the cost of goods and services goes up, Social Security checks follow suit. But a big flaw in the COLA formula has long caused Social Security recipients to lose out on buying power.

Why Social Security COLAs don’t always keep up with retirees’ costs

One of the biggest criticisms of the current COLA formula is that it’s based on the spending patterns of working-age Americans rather than retirees. And, well, that’s pretty valid.

The CPI-W tracks the spending habits of wage earners. But many retirees, by nature, do not earn a wage. And older Americans who collect Social Security often spend their money quite differently than younger households where someone is actively earning wages. In particular, retirees tend to devote a larger share of their income to healthcare expenses, including Medicare premiums, prescriptions, and other medical services. But healthcare costs have historically risen faster than overall inflation.

As a result, even when Social Security benefits receive annual COLAs, retirees may still find themselves falling behind if their largest expenses are increasing more rapidly than the inflation measure used to calculate those adjustments. Research from the Senior Citizens League highlights this issue. According to the group’s latest analysis, Social Security benefits have lost 13.7% of their buying power since 2016. The group found that many essential retiree costs increased significantly faster than Social Security COLAs over that period.

Some advocates have argued that Social Security should use a different inflation measure, such as the Consumer Price Index for the Elderly, or CPI-E, which is designed to better reflect the spending patterns of older Americans. Supporters believe this would produce COLAs that more accurately track retirees’ real expenses.  However, Congress has not adopted such a change – namely, because the Bureau of Labor Statistics considers the CPI-E an “experimental” index.

How retirees can better protect themselves from inflation

At this point, you may be in the process of planning for retirement. You may even be in the home stretch. But it’s important to recognize that even though Social Security benefits get an inflation adjustment each year, that doesn’t automatically mean they’re able to keep up with rising costs.

The solution? Take active steps to safeguard yourself from inflation rather than just rely on annual COLAs.

One of the best ways to do that is to hold the right investments in retirement — namely, investments that have historically outpaced inflation over the long term. Now you may be making plans to mostly unload stocks once you stop working. But a better bet may be to simply reduce your stock exposure.

Many retirees maintain a roughly 50/50 split between stocks and bonds. A portfolio of high-quality dividend stocks and growth ETFs should generate returns that exceed inflation in the long run, even if the remainder sits in stable assets like bonds.

Treasury Inflation-Protected Securities (TIPS) could also play a role in your strategy. These government bonds are specifically designed to adjust with inflation, helping retirees maintain buying power over time. Beyond the right portfolio mix, another way to gain more inflation protection is to delay Social Security past full retirement age for larger checks. That doesn’t solve the problem of the CPI-W disconnect. But if your monthly benefits are larger to begin with, whatever annual COLAs come through should be more meaningful to you.

The bottom line on Social Security and inflation

Social Security offers valuable protection against inflation through its annual COLAs. But those raises don’t quite get the job done. And if healthcare costs continue to outpace inflation, Social Security recipients could see a further erosion of buying power in the coming years.

Knowing about this issue ahead of time, though, puts you in a stronger position to come up with your own inflation-beating strategy. And with thoughtful planning and the right investments, you can set yourself up for much less stress in retirement even as costs continue to rise.

This article written for TheStreet by Nifty 50+