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The Invisible Enemy
Many hope to experience an improved quality of life during retirement. The planned agenda for many future retirees may include traveling, indulging in hobbies and enjoying family.
However, too many forget to factor rising inflation into their picture of the future. This is a critical mistake since inflation can reduce buying power year after year and can put a damper on projected plans. Your investment strategy must address the effects of inflation now if you are to realize your retirement dreams in the future.
How is Inflation Measured?
The Consumer Price Index (CPI) measures inflation. It is calculated by taking a basket of goods and comparing its average price at two intervals in time, while adjusting for changes made to those goods.
The CPI is the most commonly reported inflation data in the United States. Historically, the inflation rate has averaged 3.24%.1
So How Worried Should You Be?
Consider that you have $10,000 in the bank. At just a 3% inflation rate, the spending power of your $10,000 is reduced by 25% after 10 years and cut almost in half after 20 years! Put another way, if you need $65,000 a year to live on today, assuming a 3% annual inflation rate, you´ll need nearly double that amount in 24 years, just to maintain your current lifestyle.2
Now For The Good News
Your representative can help you choose investments that have the potential to keep up with or possibly even outpace inflation in retirement. Keep in mind that it´s important to start saving as early as possible.
It is also imperative to diversify* your investments since some will outperform others at certain times. The goal is for the overall value of your portfolio to increase long-term. As a result, you´ll enjoy the retirement you envisioned.
*Diversification does not assure a profit or guarantee against a loss.