Inflation affects everyone. It does not matter where you live or how old you are. It is nearly always present and slowly erodes the value of your savings and retirement funds. To develop an accurate retirement plan, you must account for inflation, or you will retire with less than you need.
Looking at the long-term picture, if you want a comfortable future, you may need to save more money than you think. Even when inflation rates are low, your retirement money depends on how much you save now.
The Current Inflation Rate
The current inflation rate for the United States, according to the
US Inflation Calculator, based on the Consumer Price Index (CPI), has been held at 3.2 percent from February 2023 to February 2024. The rate is recalculated every month. The highest it has been in recent years was during COVID, when it hit 9.1 percent in June 2022. In 1974, it had risen as high as 12.2 percent, and in 1980, it was 14.6 percent.
The Impact of Inflation on Your Savings
An inflation rate of 3 percent for three years means you will need 9 percent more in cash to have the same buying power. In just 17 years, your buying power is reduced to half. Remember, too, that the inflation rate historically has been slightly above 3 percent, but fluctuations in the market mean your buying power could be reduced much faster.
Ensure a Higher Rate of Return on Investments
Many financial instruments offer interest on your money. Instead of looking just to earn interest, you are better off if you can find investment options that give a higher rate of return than the current inflation rate. Otherwise, your investment money will slowly dwindle in buying power—the exact opposite of what you want.
