Inflation is a major threat to retirees and a risk to long-term investors of any age. What difference does inflation make?
- A 3% inflation rate will cause prices to double in 24 years or by the time a 65-year-old reaches age 89.
- A 4% inflation rate will cause prices to double in 18 years or by the time a 65-year-old reaches age 83.
Put another way, inflation will cut your standard in living in half over either of those time periods. Ouch!
On a more personal level, gaining three pounds a year may not seem like much, but 10 years later you are 30 pounds heavier. Has anyone read that America has an obesity problem?
Who hasn't had grandpa tell them that when he was growing up, movies were a quarter and a candy bar was a nickel? Who remembers buying a Volkswagen Beetle for $3,000?
Since 1913, inflation has averaged just over 3%. At its ugliest, it ranged from 10% to 13% a year in 1979, 1980 and 1981.
Understand and remember the importance of inflation. It is significant in the long run. Like 30 pounds ago!
About Bruce J. Berno, CFP®
Bruce J. Berno, CFP®is the founder of Berno Financial Management, Inc. a fee-only comprehensive personal financial planning and investment advisory firm headquartered in Cincinnati, Ohio. Since 1993, Berno Financial Management has been helping individuals and families achieve financial peace of mind. For more information about Berno Financial Management, visit http://www.bernofinmgt.com.