Inflation sometimes seems like one of those afflictions of an era long since passed into the history books. While it‘s true that double-digit inflation has been absent for the last 30 years, you may remember the high inflation years of the 1970s. 1
Will the levels of U.S. public debt and loose monetary policy revive the inflation rates of yesteryear? No one really knows. However one thing is certain - even low inflation rates over an extended period of time can impact your finances in retirement.
A simple example will illustrate.
An income of $50,000 today at an inflation rate of 3% would have a purchasing power of just over $32,000 in year 15 a 35% erosion. Said differently, to maintain the desired lifestyle that a $50,000 income would provide requires $77,900 of income after 15 years of 3% inflation. 2
Here‘s something else to consider. Retirees may be subject to a higher rate of inflation than - the headline Consumer Price Index. Why might this be the case?
Healthcare inflation has outstripped CPI inflation by as much as 3% in recent years. 3 And retirees may expect to spend more on medical expenses than most Americans.
Inflation is a thief; it steals the purchasing power of your retirement savings. But, as with your other possessions, there are strategies that may help you from being robbed of your purchasing power.
This is a hypothetical example used for illustrative purposes only. It is not representative of any specific investment or combination of investments.
YCharts.com, 2016; USInflationCalculator.com, May 17, 2016
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