How Inflation Impacts Retirement Planning

Inflation has long been known as the silent killer for financial planning because the small increases in prices each year weren’t noticeable day-to-day. Over time, however, those increments add up and eventually become magnified over the years.

Inflation has long been known as the silent killer for financial planning because the small increases in prices each year weren’t noticeable day-to-day. Over time, however, those increments add up and eventually become magnified over the years.

But there’s nothing quiet about the inflation rates we’ve seen recently. It’s impossible to ignore the rising costs in everyday goods and services we’re facing right now. Just look at how much things have changed in just 20 years. If you look at what you could buy for $1,000 in December of 2001, you’d need $1,577.83 to buy the same goods or services in December 2021. That’s a pretty significant difference when you think about the length of retirement being 20 years or more for many people today.

When you look at the reasons for inflation, it’s never one thing that causes it. When 2022 began, supply issues were a major factor for prices. The empty shelves created immediate demand and businesses had to increase prices as a result. But there’s also been a significant surge in the circulating supply of the dollars in our economy, which weakens the overall value of our currency.

Regardless of the reasons, it’s directly affecting everyone, and that’s especially true for retirees and pre-retirees. That loss of purchasing power could really hurt your chances of a successful retirement if you aren’t factoring it into your investment strategy. Hopefully you’ve already been doing that, even in the low inflation years because over a long period of time, the rates will average out.

That’s one reason you shouldn’t get too caught up in the moment. With a comprehensive retirement plan that’s been customized to your needs, you shouldn’t need to react to inflation or stock market volatility or other changes to the financial landscape because it’s something you’ve already prepared for.

But years like this might require additional attention to your plan because there are unique challenges. Certain investments work well in this type of environment, so you’ll want to reassess that area of your plan. Then there’s your safe money, which will be losing even more ground if you don’t take on a bit more risk. These are some of the factors at play when you work to outpace inflation, which is always the goal in retirement.

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