As a kid growing up, you can probably remember those endless stories your grandparents told about how they could go to the store with a quarter and walk out of the candy store with tons of candy. You can probably also personally remember those times when gas was cheaper, milk prices weren’t being monitored, dates didn’t involve prior financial discussions and you could simply just enjoy the necessities and non necessities of life without it being a financial burden. Life was good. As prices have gradually increased over the last few years many have began to question what exactly has led to such drastic increases. The answer: inflation.
What is inflation?
Inflation is defined by the United States government as an increase in the level of prices for goods and services. When inflation increases every dollar in your pocket loses buying power and is only able to buy a small percentage of goods and services.
Where's inflation headed in the future?
In recent weeks since the United States election has concluded, Wall Street analysts have began to forecast what impact a new president will have on inflation rates. While many answers will remain primarily unknown until President-Elect Donald Trump steps into office it is for certain that inflation will occur and rapidly. This in part can be predicted because of government spending on infrastructure which includes but is not limited to restrictions on trade and immigration. Still a few months away from any immediate change in inflation, many Americans have continued their discussions on just how inflation will impact their retirement.
Many financial experts are cautioning Americans not to ignore inflation trends even if you are a few years away from retirement. This has become an important topic of discussion because inflation can impact your retirement in more than one way including through your savings and through your budgets.
Why does inflation matter for retirement?
Inflation and purchasing power have been shown to have a direct correlation. It is almost guaranteed that the interest rate your savings account is paying is less than the rate of inflation. This essentially confirms that the prices on goods and services are growing faster than the value of the dollars in your savings account.
Another way inflation impacts retirement is that it depletes your budget. Once you embark on the journey of retirement you’ll be able to see first hand that when you don’t have access to full time wages it becomes increasingly important that you take precaution when planning your budget. The problem that future retirees face is that $50,000.00 or more in 2-3 years may not have as much buying power for goods or services as it did even 3-4 years ago. As time goes by your yearly budget will vary from year to year so as a retiree you’ll almost always want to watch inflation and the cost of living.
As you begin to strategically calculate your retirement needs it’s vital that you incorporate potential inflation into your financial agenda. There are a variety of online calculators available that can help you forecast your financial future prior to retirement or you could utilize a financial advisor. Whatever option you choose, continue to remain invested into your retirement even before your date of retirement comes.