Inflation - It Erodes Your Savings and Investments
Inflation is a sustained increase of prices. Inflation need not be a harmful if your income keeps up with it. But if you're on a fixed income or your income increases less than inflation, inflation can rob you of purchasing power because everything costs more.
For example, assume you are retired and live on $50,000 per year. Further assume the inflation rate is two percent per year. What will your expenses be in five years? At 2% annual inflation your expense will be 1.10 times the year one expenses. So your $50,000 expenses would grow to $50,500. In 20 years your expenses would grow by a factor of 1.49 to $74,500.
You must account for inflation when you determine your retirement expenses and the size of your retirement portfolio. If you ignore the effect of inflation, you'll increase your chances of running out of money after you retire.
To learn more about inflation and obtain the current inflation rate and historical inflation data go to InflationData.com.