A dollar today would be worth roughly half of what it was 25 years ago at an average inflation rate of 2.5%. Protecting the purchasing power of your money is key to maintaining your lifestyle in retirement.
Why does inflation matter in retirement?
Inflation measures the change in the cost of living over time. There’s a good chance the spending power of the income you have now will be reduced by inflation during your retirement because the costs of goods and services will rise.
Part of maintaining your lifestyle in retirement is making sure your retirement income can keep up with inflation.
Even low rates of inflation can have a large impact on your purchasing power
Even low inflation rates can have a large impact on purchasing power if the time period is long enough. For example, if inflation averages 2.5% per annum, then after 15 years, 31% of the real value of each dollar of retirement savings has been lost and by year 28, half the real value is gone. The chart below shows the falling value of $100 over a 30-year period.
Managing the risk of inflation – what are the options?
- Talk to a financial adviser about diversifying your investments to provide protection against the impacts of inflation.
- Consider a retirement income stream that helps protect the value of your savings from inflation, such as a Challenger Lifetime Annuity. Challenger annuity payments can be linked to yearly inflation changes, helping you to continue to afford tomorrow, what you can afford today.
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