Saving For Retirement: Inflation

By Patricia Uceda, Spring 2015 Graduate Research Assistant

Because of inflation, the cost of retirement will likely go up every year. $50,000 won’t buy as much in your retirement as it will now because the cost of living will have gone up. Social Security benefits are automatically adjusted for inflation, however your estimates of how much income you need each year, and how much you’ll need to save to provide that income, must also be adjusted for inflation.

The annual inflation rate is currently 2.1%, however it can vary drastically over time. The annual inflation rate has been as low as 1.6% and as high as 13.5% in the past forty years. When planning for your retirement it is always safer to assume a higher, rather than a lower, rate and have your money buy more than you previously thought.

As we discussed earlier, you can use FINRA’s Retirement Calculator to calculate how much you need to save annually to meet your annual retirement income goal, and it takes inflation into account.