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How will inflation affect your retirement?
By: Edward Jones
To begin with, it's important to note that the key factors driving inflation in 2021 were somewhat unusual. The global economic recovery, while still incomplete, led to greater consumer demand for goods and contributed to the supply chain bottlenecks. At the same time, government spending increased in response to the continued effects of the pandemic.
So, it's quite possible that after these factors fade in intensity, we may step back from the hot inflation of 2021, which really was quite significant – in fact, at one point in the year, the Core Consumer Price Index (CPI), which measures the changes in the price of goods and services, excluding food and energy, showed the largest 12-month increase since 1992.
But even a moderate inflation rate, such as we've experienced the last few decades, can, over time, greatly reduce your purchasing power. And in a few years, when you retire, you may be especially vulnerable to inflation, as you will no longer receive yearly salary increases that can help you stay ahead of the cost of living. Plus, you'll need to protect yourself from the threat of outliving your resources. Consequently, you need to be aware of how inflation will affect your investment portfolio.
Here's how the two main categories of investments respond to inflation:
Inflation is a fact of life – but by making the right moves, you don't have to let it devalue your future.
Edward Jones - Mae Luchetti