Inflation's Impact on Retirement: Protecting Your Savings

When evaluating your retirement portfolio, you should pay special attention to the potential impact of inflation on it. Many people do not consider how inflation can impact their retirement savings. Here are a few things to consider about inflation and your retirement portfolio.

Inflation

As a general rule, most experts will tell you that you can expect about 3 percent worth of inflation every single year. In some cases, inflation can be even higher than that. While 3 percent might not seem like much, over the course of your working life, it will add up substantially. For example, if you are currently living a lifestyle that requires you to make $40,000 per year, in 20 years, you are going to need to make over $65,000 per year. This means that your retirement portfolio is going to have to grow substantially to support your current standard of living.

Hedging against Inflation

In order to hedge against inflation, there are some methods that you can use. For example, you could buy inflation bonds from the United States Treasury. These bonds pay a specific amount of money based upon increases in the Consumer Price Index. Although this type of investment can help you keep up with inflation, you could potentially do much better with other investments.