Inflation Can Cripple Retirement Planning

By |2020-04-17T16:16:39+00:00June 22nd, 2017|Retirement Planning|

Most investors only consider the risk to their principal, which is why they favor Certificates of Deposit over non-FDIC insured investments for their most protected assets.

The risk of lost buying power is a more complicated dynamic. The dollar value of principal stays the same, but year after year, a dollar buys less and less.  This happens so gradually over time. A gallon of milk increases a few cents over the course of months, and it is easy to tune out the constant, low-level increases in utility fees like electricity, shipping of goods and services, gasoline, heating fuel, and water delivery.

Inflation is insidious this way, and it varies so widely over the range of goods and services that it ‘s hard to gauge the true effect on an individual basis. For example, individuals paying for their major medical coverage who are experiencing any health care issue were noticing double digit spikes in the year to year increases in health insurance and medical care. If health care costs become a significant percentage of purchases in any given year, the massive erosion of health care buying power can affect the risk of loss from inflation.  Individuals who are young, healthy or receiving high-quality coverage from their employers may not see health care inflation affecting their buying power nearly as much.

Noticed or not, inflation is real, and it can vary widely based on an individual’s circumstances.  To offset inflation, your income must rise each year.  Assuming you don’t go back to work, this income must come from a pool of assets that is also growing.

Inflation is dangerous, the most dangerous roadblock in retirement planning.  Inflation is the retirement planner’s largest and most focusing problem.  Inflation must be calculated into any responsible plan.

“Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man.” – Ronald Reagan

The impact of inflation: Inflation and the Purchasing Power of One Dollar 

“Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man.” – Ronald Reagan

The impact of inflation: Inflation and the Purchasing Power of One Dollar Average Annual Rate of Inflation






The US Department of Labor Bureau of labor Statistics maintains an inflation calculator.  Here is the link:

In simple terms, inflation can be defined as either a rise in prices or a fall in the value of money. The short answer is, “An increase in the cost of things that are necessary for humans to live and enjoy life, such as bread, butter, milk, cheese, coffee, oil, shelter, clothing, medical services, chicken, cotton, and electronics. Or “a decrease in the value of money so that it takes more dollars to buy the same goods and services it did in the past.”  

Looking back just a few years will show examples of how inflation can drastically effect fixed retirement income. Since the 1950’s inflation has increased average prices 1,000% or more as of November 2016.

Example 1: a postage stamp in the 1950s costs 3 cents; today’s cost is 46 cents – 1,600% inflation.

Example 2: a gallon of full-service gasoline cost 18 cents before; today it is $3.65 for self-service – 1,667 % inflation.

Example 3: a new house in 1959 averaged $14,900; today’s average home costs $282,300 – 1,795% inflation.

Example 4: a dental crown used to cost $40; today it costs $940 – 1,950% inflation.

Example 5: an ice cream cone in 1950 cost 5 cents; today you’ll spend $3.50 – 5,900% inflation.

Example 6: several generations ago a person worked 1.4 months per year to pay your federal tax bill; now it takes 5 months.

Also, in the past, the one wage-earner families lived well and built savings with minimal debt, and many families paid off their home and college educations for their children without loans. How about today?

Few citizens know that a few years ago government changed how they measure and report inflation, as if that would stop it – – but families know better when they pay their bills for food, medical costs, energy, property taxes, insurance and try to buy a house.

Inflation is part of our lives and part of our retirement planning, it must be dealt with.

Here is a link for up to date information on current and historical inflation rates:





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About the Author:

Lyle has actively taught advanced estate planning and asset preservation for more than twenty years in such places as the University of Utah and in over 200 Senior Retirement Consumer Education Workshops throughout Utah, Idaho and Wyoming. Websites: |

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