How does inflation affect my retirement planning?
Inflation is a factor whenever you're investing, but it takes on added importance when
you're saving for retirement. Inflation, of course, is the gradual increase in the cost of
living. While it hasn't been much of a problem over the past few yeas, it hit a staggering
14 percent in the 1980s and has averaged 4 percent over the last 70 years. Assume
inflation continues to average 4 percent a year for each of the next 20 years. If you
retired today, you would need to earn twice as much 20 years from now just to maintain
your current standard of living. And since you won't be working, you will have to depend
on your investments to do the work for you.