How can this effect your retirement savings? We all know that things will cost more, but here are a few examples assuming annual inflation of 3% per year over 20 years:
- House - Current: $200,000 Future: $364,424
- Loaf of bread - Current: $3.00 Future: $4.47
- Car - Current: $30,000 Future: $54,664
Some of these figures may not thoroughly register. But, let's look at things with a retirement angle. You have to try and keep up with the rate of inflation via your investments. Sitting in a conservative account (ie. money market fund) earning 1% per year, is a sure fire way of failing to reach your retirement plan.
You have to outpace the rate of inflation to stay ahead of the curve. A retiree living on a fixed income of $30,000 cannot sustain spikes or long term increases in inflation. Oil & gas drastically increased a few years ago and then retreated. This effected a number of people, not to mention summer vacation plans. Long term increases will permanently decrease purchasing power AND your lifestyle.
Your retirement income can decrease by 50% if inflation averages 4% over 18 years. Retiring at 60 or 62 sounds good on paper, but unless there's an ample amount of pension money, retirement savings, real estate, etc, to last another 20-30 years, you could be selling yourself short.
Longevity and healthy living is an amazing concept... don't be overly cautious with your retirement investments.