Inflation & Purchasing Power
Key Takeaway
Always consider both nominal and real (inflation-adjusted) values when projecting your retirement savings.
What Is Inflation?
Inflation is the rate at which the general price level of goods and services rises over time. When inflation goes up, each unit of currency buys fewer things. For retirement planning, this means the money you save today may buy less when you actually need it.
Nominal vs Real Value
Nominal value is the face value of money without adjusting for inflation. Real value is what that money can actually buy after accounting for inflation. A projected portfolio of $1 million in 30 years may only have the purchasing power of $400,000 in today's dollars at 3% annual inflation.
Why It Matters for Retirement
If you plan to retire in 20-30 years, inflation will significantly affect how much your savings can actually support. A retirement spending target of $5,000 per month today could require $9,000 or more per month by the time you retire, just to maintain the same lifestyle.
How to Plan for Inflation
The best approach is to always consider both nominal and real projections. Our planner shows both values automatically. You should also consider investments that tend to outpace inflation over time, and build in some buffer in your spending estimates.
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