Defend Your Retirement from Inflation

Throughout most of 2008, abnormally high gas and food prices contributed to a spike in the consumer price index, a popular measure of inflation. In fact, the CPI rose at a 5.6% annual rate in July 2008, a 17-year high.¹

The slow and steady advance of inflation is normally difficult to detect from one year to the next, although dramatic increases such as we saw in 2008 can cause immediate pain for retirees and others living on fixed incomes. However, when left unchecked for long periods, inflation can pose a significant threat to quality of life for retirees, primarily because it reduces the purchasing power of their retirement incomes.

It is important to keep inflation in mind when projecting your future income needs. The rate of inflation will necessarily influence decisions you make today about how much income your retirement portfolio will need to produce in future years.

To counter the effects of inflation on your portfolio, you might consider including some investments that have the potential for higher returns over the long term. However, remember that investments seeking the potential for greater returns often entail a greater level of risk.

Inflation will probably always be with us. Anticipating its effects today can help prevent surprises tomorrow.

1) Haver Analytics, 2008. Consumer price index for the period January 1990 to September 2008.

This material was written and prepared by StoneRiver–Emerald.
© 2009 StoneRiver, Inc.