One Question Can Make or Break Your Retirement. Most People Never Think to Ask It.

As you plan, save, and invest for your retirement, ask yourself: "Am I factoring inflation into my plan?"

It's critical to consider inflation, because even when it seems moderate, it can wreak havoc on your wealth over time. For example, the long-term average inflation rate is around 3%. If your portfolio is worth $100,000, one year of 3% inflation will leave it with only $97,000 of purchasing power, roughly.

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Now imagine what 25 years of 3% inflation can do to your nest egg. If you retire with $1 million after 25 years, the purchasing power of those dollars may only be around $500,000. So a car that would cost you $25,000 today might cost you $50,000 in 25 years. A burger that might cost you $15 today in a restaurant might cost you $30. A home insurance policy that costs $1,500 today might cost $3,000.

Note, too, that inflation is rarely exactly average. In some years, it can be quite high. It was 8% in 2022, for example, and 4.7% in 2021. 2015 saw a rate of just 0.1%, and in 1979, it was 11.3%.

What to do about inflation

A good rule of thumb is to hope for the best but prepare for the worst. So plan and save and invest, but aim to amass more than you originally planned to. Here are some more strategies to consider:

Delay claiming Social Security benefits until age 70, if you can. That will maximize your checks and will also maximize your annual cost-of-living adjustments (COLAs).

Don't be too conservative with your investments. In retirement, it could be too risky to be 100% in the stock market, but moving all your money into interest-bearing accounts might mean they grow at a slower rate than inflation. Come up with an asset allocation you're comfortable with.

Consider favoring healthy and growing dividend-paying stocks, as their dividends (which will often increase over time) can help you keep up with inflation.

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