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How Inflation Threatens Retirees

Published: August 21, 2020

How Inflation Threatens Retirees

Its effect is subtle, yet significant.

Even mild inflation eventually reduces the value of a dollar. If consumer prices rise just 2% a year for the next 25 years, $50,000 will buy the equivalent of $30,477 by the end of 2041. Or to put it another way, a car that costs $50,000 today will cost $82,030 by then. If inflation approaches levels seen before the Great Recession, there will be more to worry about: after 10 years of 5% inflation, it would take $163 to buy the groceries $100 could today.1,2

Extremely conservative investments may not yield enough to keep pace with inflation. If you favor such investments, you may effectively end up “living on less” as your buying power dwindles. In recent years, some costs have risen much faster than the inflation rate, such as prescription drug prices and the expense of a college education.

This is why growth investing matters in retirement. While investors commonly want less risk in their portfolios as they age, accepting some risk (and staying invested in equities) may be necessary. In a good year, equities may post greater returns than fixed-income investments. Social Security income merely increases in proportion to inflation; it keeps pace with it, but never outruns it. (COLA’s are not guaranteed.)

Stock investing involves risk including loss of principal. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

Contact a Fellows Advisor today for a complimentary review of your retirement plan.

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This material was prepared by LPL Financial.

1 https://www.fidelity.com/viewpoints/retirement/3-retirement-building-blocks

2 https://www.ing.com/Newsroom/News/Features/Feature/What-is...-inflation.htm

Securities offered through LPL Financial, member FINRA/SIPC. Investment advice offered through Wealthcare, a registered investment advisor. Wealthcare and Fellows Financial Group are separate entities from LPL Financial. To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL Financial affiliate, please note LPL Financial makes no representation with respect to such entity. Not Insured by FDIC/NCUA or Any Other Government Agency Not Bank/Credit Union Guaranteed Not Bank/Credit Union Deposits or Obligations May Lose Value.

This information has been derived from sources believed to be accurate. This information should not be construed as investment, tax, or legal advice and may not be relied on to avoid any federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such.

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