How does inflation impact my retirement savings?
Inflation is the increase in the cost of goods and services over time. What $100 is able to purchase today is going to be a lot less than $100 can purchase 20-30 years from now. Let’s look at an example. At 3% inflation, $100 today will be worth only $67.30 in 20 years, which is a loss of one-third of its value. At 35 years, this amount would be further reduced to just $34.44.
It is crucial that you take inflation into account when determining how much retirement savings you will need. If you hope to maintain a certain standard of living over a 20- to 30-year retirement, you must account for the increasing cost of goods and services that will occur over that time period. To account for inflation, your long-term retirement strategy must balance short-term income needs and long-term investment growth.
The information in this column is designed to be authoritative. The publisher is not engaged in rendering legal, investment, or tax advice.