Adam Bergman

Founder, Tax Lawyer, Author

Most retirement investors judge their progress by one number: the annual return printed on their account statement. Earn 7% and you feel good. Earn 10% and you feel great. But that number doesn’t tell the whole story, because what matters in retirement isn’t how many dollars you’ve accumulated, it’s what those dollars will actually be able to buy. That’s why I think real returns in retirement deserve far more attention than most investors give them, and why inflation is one of the most underestimated risks retirement savers face.

A recent Wall Street Journal article looked at a related problem: our tax system measures investment gains in nominal dollars, not inflation-adjusted ones, so the government can tax a “gain” that’s really just the dollar losing value. As a tax lawyer who’s spent much of my career in retirement accounts, I think the lesson runs even wider than the tax code. Inflation doesn’t just raise the price of groceries, housing, and healthcare. It quietly reduces the value of the investment returns we spend decades building. That’s one of the reasons I believe alternative assets, including real estate, private businesses, private credit, infrastructure, and precious metals, deserve a real place in the retirement conversation.

Real Returns in Retirement Beat Big Numbers on a Statement

Say you’ve accumulated $500,000 and your investments return 7% this year. Your account earns about $35,000 and finishes at $535,000. Most people would be happy with that.

But if inflation ran 3% over the same period, your purchasing power didn’t actually grow by 7%. Your real return was closer to 4%. At 4% inflation, your real return falls to roughly 3%. At 5% inflation, you’re left with about 2%.

That gap compounds. Invest $500,000 at 7% annually for 25 years and your account grows to roughly $2.7 million, more than five times your starting balance. But if inflation averaged 3% over those 25 years, that $2.7 million would only buy what about $1.3 million buys today. You’d still have built real wealth, just far less than the statement suggests. Your retirement lifestyle will be paid for with purchasing power, not with a return percentage, so real returns in retirement are the number that actually matters.

Inflation Can Hit Taxable Investors Twice

There’s a second piece of this I find particularly interesting as a tax lawyer. For investments held outside a retirement account, the federal tax system generally doesn’t adjust your cost basis for inflation when calculating a capital gain.

Say you buy an investment for $100,000 and sell it for $150,000. You’d generally owe tax on a $50,000 gain. But if cumulative inflation over the holding period was 30%, your original $100,000 would need to become about $130,000 just to keep pace. Your real gain was closer to $20,000, not $50,000, yet the tax bill is calculated on the full nominal gain.

Inflation can hurt taxable investors twice this way. First, it reduces the purchasing power of the return itself. Second, you can still owe tax on the portion of the gain that only compensated you for inflation in the first place. That’s one reason where you hold an investment can matter almost as much as what you hold.

What a Retirement Account Can, and Can’t, Fix

A retirement account can’t eliminate inflation, but it can eliminate or defer the other major drag on long-term wealth: taxes. Inside a Traditional IRA or 401(k), gains generally compound without current tax, though distributions are taxed later. Inside a Roth IRA or Roth 401(k), qualified gains can come out completely tax free.

That’s genuinely powerful, but I’d push the analysis one step further. Using a retirement account’s tax shelter to own the same stocks and bonds you’d hold anyway solves the tax problem and leaves the inflation problem untouched. Retirement accounts can also hold investments built to generate different sources of return, which is where alternative assets come in.

Assets That Can Help You Keep Pace With Inflation

Real Estate

Real estate is the easiest alternative asset to picture here because it’s tangible, and its economics tend to move with prices across the economy. As inflation rises, so do the costs of land, labor, materials, and insurance, and rents on many properties can rise with them. Compare a fixed-rate bond paying $40,000 a year to an apartment building generating the same $40,000 in net rental income. The bond payment stays flat for a decade while inflation erodes it. The building’s rents can adjust. Not every deal will outperform inflation. Price, leverage, tenant quality, and management still matter, but real estate offers something most fixed-income investments don’t: an income stream with room to grow.

Private Credit

Many private credit investments carry floating interest rates, so as benchmark rates rise, so can the borrower’s payment, and your income with it. That’s the opposite of a traditional long-duration bond, whose fixed payment loses purchasing power, and whose market value can fall, when rates climb. Private credit carries its own risks: borrowers can default, and liquidity and manager quality vary widely. But it offers retirement investors a source of income with different economics than a fixed-rate bond portfolio.

Private Equity

Ownership has always struck me as one of the most reliable ways to build wealth, and private markets are considerably larger than the pool of companies trading on public exchanges. Private equity gives investors access to businesses at different growth stages, some with the pricing power to raise prices as their own costs rise. Rising labor, financing, and material costs can hurt private businesses too, so this isn’t an automatic inflation hedge. But a successful business can grow revenue, raise prices, and expand, something a fixed-income investment simply can’t do.

The 60/40 Portfolio May Need Backup

The traditional 60% stock, 40% bond portfolio isn’t broken. Stocks provide growth and liquidity, bonds provide income, and I’m not suggesting anyone abandon either. The real question is whether stocks and bonds should be everything an investor owns.

Inflation complicates that mix because higher prices can pressure stock valuations and push up rates at the same time, which hurts existing fixed-rate bonds. Stocks and bonds can struggle together, right when investors are counting on them to diversify each other. That’s why I think the better question for retirement portfolios isn’t how much to put in stocks versus bonds, but what other assets can generate returns from genuinely different sources.

It also helps to remember that retirement money is already long-term capital. If you’re 40 and won’t touch this money until 60, 65, or 70, does every dollar really need to be sellable tomorrow morning? Liquidity has real value, and every investor needs enough of it to cover distributions and near-term needs. But investors are generally compensated for giving up liquidity, through what’s known as the illiquidity premium, and a multi-decade retirement horizon is exactly the kind of timeline where that trade-off can make sense.

Pair Alternative Assets With a Roth IRA

This is where the strategy gets especially interesting to me as a tax lawyer. Say you put $100,000 into a private investment that eventually grows to $500,000. Owned personally in a taxable account, that $400,000 of growth generally creates a taxable gain. Held in a Traditional IRA, it compounds tax deferred, and you owe tax on distributions later. Held in a Roth IRA, and assuming the rules are met, that $400,000 of growth can potentially come out completely tax free.

That’s the combination I keep coming back to: use the investment to fight inflation, and use the account structure to fight taxes. I discovered how much room the tax code leaves for this back in 2008, researching a client’s question in a law library, and that discovery is what led me to start IRA Financial. Today the firm works with more than 27,000 clients and administers over $8 billion in alternative retirement assets, for a flat $495 annual fee that doesn’t change as an account grows, with in-house tax attorneys and ERISA specialists handling the details.

Alternative Assets Aren’t Magic

An investment isn’t automatically good just because it’s alternative. Real estate deals go bad. Private businesses fail. Borrowers default. Private equity funds underperform, some charge steep fees, and illiquidity becomes a real problem if you haven’t planned for future cash needs.

The goal isn’t to swap a diversified portfolio of public securities for a pile of speculative private bets. Low-cost index funds should still anchor most retirement portfolios. I see alternative assets as another layer of diversification, one that can behave differently from stocks and bonds when inflation runs structurally higher than it did in the decades before COVID.

Stop Thinking About Retirement in Nominal Dollars

Having $1 million or $2 million 25 years from now won’t buy what $1 million or $2 million buys today. Inflation guarantees that. The goal isn’t to accumulate more dollars, it’s to accumulate more purchasing power, which means chasing real, after-inflation returns, minimizing unnecessary taxes and fees, and using the tax benefits Congress built into IRAs, 401(k)s, and Roth accounts.

For investors with the resources and risk tolerance for it, it also means looking past the traditional stock-and-bond portfolio. Real estate offers ownership of tangible, rent-generating assets. Private credit can offer income that adjusts with rates. Private equity offers ownership of businesses that can grow revenue and raise prices. None of these are guaranteed to beat inflation, and none replace thoughtful diversification, but they widen the field beyond stocks and bonds.

For decades, Wall Street has asked investors how much should go to stocks and how much to bonds. I think the better question for the next several decades is broader: what do you own that has the potential to grow faster than your purchasing power declines? Once you start asking that question, the case for alternative assets in a long-term retirement strategy becomes a lot easier to see.