The Silent Tax: How Inflation Erodes Your Retirement
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Summary
Retirement planning often begins with a simple calculation, current income versus expenses. But many people forget to account for one powerful force: inflation. Even if you’ve saved diligently, your purchasing power will erode over time if your plan doesn’t account for rising costs.
Understanding Inflation’s Silent Impact
Inflation is essentially your money losing purchasing power year after year. A $100,000 salary today could be worth only about $55,000 in 20 years if inflation averages 3%. While that decline feels gradual, the long-term effect is significant and dangerous if unplanned.
Where Inflation Hits the Hardest
Over the past 20 years, everyday essentials and services have outpaced average inflation:
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College tuition: +141%
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Childcare: +128%
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Gasoline: +128%
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Medical care: +3.8% annually
Meanwhile, items like apparel and airfare have risen much more slowly. The takeaway? You need to pay closer attention to the categories that hit retirees hardest, healthcare, housing, and living costs.
Why Savings Alone Isn’t Enough
Keeping money in low-interest savings accounts may feel “safe,” but it actually locks in losses when inflation outpaces your interest rate. Without growth, your future self will be left with less spending power.
Strategies to Beat Inflation
Smart investing is the best defense. A diversified portfolio that includes stocks, real estate, and inflation-protected securities can help your retirement plan keep pace with rising costs. Balance is key, too much risk brings volatility, but too little leaves you exposed to inflation.
Planning in “Future Dollars”
It’s easy to think in terms of today’s money, but retirement requires planning in future dollars. That means projecting what $100,000 worth of expenses today might look like in 20 years. At Wiser Wealth Management, we apply realistic inflation assumptions and run projections to ensure your plan reflects true long-term needs. If you have more questions about what inflation to your portfolio, please reach out to schedule a complimentary consultation.
The Value of Ongoing Planning
Retirement planning isn’t one-and-done. Life changes, markets shift, and inflation continues its steady climb. Regular check-ins with a fiduciary, fee-only planner ensure your plan stays aligned with reality and your financial goals.
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