Inflation is a word you encounter all the time–from the TV to the newspaper, your friends talking about it–it’s everywhere. If you used to ignore it or not care about it before, maybe it’s time you think again because inflation is something you should be aware of and very well informed about.
Inflation is defined as the rate at which prices of goods and services rise. Basically, inflation makes essential goods and services more expensive thereby decreasing the value of your money. (Wikipedia)
Also another topic that gets talked about all the time is the national debt.
Why everybody is concerned about inflation and the U.S. debt and why should you be too.
Here are some facts that you should know about:
You lose money and savings
If you ever heard your grandparents telling you that 20 years ago they used to pay $0.10 for a certain good that you pay $2.00 for now, you have an idea how inflation works. You don’t lose the amount of money literally, but you lose your purchasing power and value of your money. Your dollar was worth so much more 20 years ago than it does now.
Your savings, whether you placed in a piggy bank or deposited in a savings account, also loses its value depending on the inflation rate. The interest it gained from the bank is sometimes below the inflation rate making it not earn anything.
With inflation, the dollar also loses its value against other currencies.
Essential goods and services will be harder to afford as rate of inflation exceeds the rate the wage increases.
Escaping the national debt
Inflation has always been looked into as one solution to help alleviate the staggering US debt. This is because when inflation rate is high, fixed debt will remain the same and becomes easier to pay off. It may temporarily do create a temporary solution to debt crisis but with greater consequences to average citizens and their assets especially hard-earned retirement savings.
Retirement value decreases
A recent survey released by Morning Star, reported that inflation is one of the top retirement risks. In reality, one won’t be spending the same amount of money to pay for the same standard of living year after year.
With inflation, one will need more money to support his or her standard of living in the future. This is why in retirement planning, aside from deciding how much you should save for it when the time comes; another crucial factor to consider is the inflation rate, which is being taken for granted by most people.
To illustrate, say you initially need $50,000 per year for your standard of living as you go into retirement. With a 4% average inflation per year, in 10 years you will be needing $71, 166; in 20 years, $105, 342; and in 30 years $155, 933 which is more than three times the original amount to maintain the same lifestyle.
How can you fight inflation during retirement?
Investing for your retirement is a must, but what is wiser is to be selective in investments that will for surely and safely yield inflation-proof returns. It is best to consult a financial professional for advice on investing on bonds, stocks, real estate, and money market funds. Another good investment options to look into is precious metals, gold and silver that have been proven to be safe and high-yielding.