Weekend Reading: How Much Should You Worry About Inflation in Retirement?

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Weekend Reading

Utilizing old rules of thumb to determine how inflation could impact your retirement won't provide you with a realistic answer. Find out how to better factor future inflation into your retirement plan in this article from Morningstar below.


You might view inflation as one of the biggest risks to your retirement, but to get a better idea of how much it could actually affect your lifelong savings, you need to calculate your own, custom inflation rate.

Looking back: When the U.S. government first began calculating inflation statistics in 1913, we sat at about a three percent inflation level. However, based on the most commonly calculated Consumer Price Index (CPI), as of February 2021, that rate stood at 1.7 percent.

Get a custom calculation: While utilizing broad averages, such as the CPI, can be helpful as a starting point in protecting your retirement plan from inflation, they’re not a catch-all. Numerous factors play into your overall consumption bracket, such as your age, lifestyle choices, and where you live. A statistic called the Consumer Price Index for the Elderly (CPI-E) was developed to help adults aged 62 and oversee how their inflation rates differ from the broader population, as shown here. But again, this is simply a generality.

If you’re wondering whether or not you should be worried about inflation, the answer is, it depends. You can calculate your personal inflation rate by looking at your actual spending in each of the major categories, then blending that with the inflation seen in those areas.

My advice: Creating a customized inflation strategy for your retirement plan makes sense on the front end of retirement, but don’t forget to take into consideration how your spending patterns, and in turn, your weightings for these expenses, will evolve over time.