I’m curious.

Would you accept a job if you knew your employer would cut your pay every single year?

I can’t imagine anyone saying yes. 

But – that’s exactly what you’re doing if you don’t have a retirement plan that considers inflation when determining your income needs.

Before you decide that inflation won’t affect you, let’s talk over a few scenarios. 

If interest rates rise by 2.5-3% per year, prices will double in 20-28 years. So, in this example, if you retire at 65 and live until 93 (which is getting more and more common), you will see your expenses double over your retirement.

But, how will this affect you? In a nutshell: Not planning for inflation will greatly reduce your buying power.  

Your money will get you less and less, essentially, like having a job that docks your pay every year. 

Although the interest rate for the last few years has averaged between 1.2-2.4%, it looks like this trend might not hold out.

In fact, there are a few examples of times when inflation rates have been astronomical.

  • In Hungary, just after World War II (1945-1946), prices doubled every 15 hours – the inflation rate was 41.9 quadrillion percent.
  • In Zimbabwe, prices doubled every day from March 2007 to Mid-November 2008 – the inflation rate was 89.7 sextillion percent.

I know those numbers seem made up – but they’re not. Hungary’s hyperinflation was a direct result of World War 2’s effects on their economy. Zimbabwe’s inflation was rooted in unsustainable government spending. 

Obviously, I don’t have a crystal ball, and I am most definitely not suggesting that we will see inflation of the likes of Hungary and Zimbabwe. 

What I am suggesting is that you should be prepared to pay more for your expenses as you go through your retirement. 

If you’d like to talk this over and review your situation in full to see if you’re truly prepared for retirement and inflation, call 513-563-PLAN (7526) or go online to book a 15 minute chat. 

There is much you can do to protect yourself, and this no-cost consultation can help shed some light on that. After all, being prepared is the best gift you can give yourself. 

Nikki Earley, CFP®