Inflation is something that many people completely forget to factor in when calculating how much money they’ll need to retire, and that can be really detrimental for a number of reasons. In today’s video, I’ll explain why and what you can do to protect yourself.

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LEARN ABOUT: Investing During Inflation

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As we approach our retirement years, one major factor that often goes unnoticed is the impact of inflation. Inflation affects our purchasing power and can significantly affect our post-retirement finances. It is essential to understand how inflation works and how it affects your retirement.

What is Inflation?

Inflation is the rate at which the general level of prices for goods and services is rising and, subsequently, purchasing power is decreasing. It is an economic phenomenon that has been experienced by all societies and economies throughout history.

Inflation is typically measured by the Consumer Price Index (CPI), which tracks the prices of a basket of goods and services consumed by households. As inflation increases, the purchasing power of money decreases, and the same amount of money buys fewer goods or services.

How Inflation Affects Your Retirement

As inflation increases, the cost of living increases as well. This means inflation can affect your retirement in various ways:

1. Reduced Purchasing Power

Inflation reduces the purchasing power of your money over time. The money you saved for retirement will buy fewer goods and services, making it harder to maintain your standard of living.

2. Increased Healthcare Costs

Retirees often have health issues that require expensive medical care. The cost of healthcare has been increasing faster than the overall rate of inflation, which means healthcare costs will increase faster than other expenses, making it more expensive for retirees to maintain their healthcare needs in retirement.

3. Lower Investment Returns

In a period of high inflation, returns on investments are often lower, mainly if the investments are fixed-rate or fixed-income securities. This means that investment earnings may not keep pace with inflation, leading to a reduction in purchasing power.

How to Protect Your Retirement Against Inflation

1. Invest in Inflation-Protected Securities: Treasury inflation-protected securities (TIPS) and inflation-indexed annuities (IIAs) are investments that offer protection against inflation. They pay a fixed rate of return plus an inflation adjustment that helps maintain the purchasing power of your money.

2. Invest in Stocks: Historically, stocks have performed well in high inflationary periods. Companies can adjust their prices to reflect higher costs of production or raw materials, leading to higher profits and favorable stock returns.

3. Plan for Higher Costs: Make sure to plan and budget for higher inflation costs such as healthcare, food, and housing expenses. Regularly monitor your expenses and adjust your budget accordingly.

In conclusion, inflation can significantly affect your retirement plans, reducing your purchasing power and affecting your investment returns. Investing in inflation-protected securities, stocks, and planning for higher costs can help protect your retirement against the effects of inflation. By taking proactive measures, you can ensure your retirement plans remain on track and ensure you maintain your standard of living throughout your golden years.