Advice: Even Mild Inflation Should Scare You

Inflation and Your Retirement Plans

Tim McMahon of InflationData.com keeps track of these historical inflation statistics, with an amazing array of online charts and calculators. One calculator lets you figure out the total rate of price inflation between any two dates from 1914 to the present.

Perhaps the most useful feature of the site is a retirement inflation calculator. It allows you to calculate the impact of inflation on the spending power of your retirement dollars over the years.

Suppose you retired with $1 million at age 60 this year. Assuming that amount, conservatively invested, earned 5% annually, you would think it would be plenty to support you for the rest of your life.

Think again.

Just 25 years later, your assets would be worth only $359,245.36 in buying power. And since you could be depleting those assets over your lifetime, you might very well find yourself with little or no buying power as you live longer, and inflation continues, or increases as markets are now predicting.

We live in dollars, shop in dollars, invest in dollars, and retire in dollars. But we very rarely think about hedging our dollar bets -- something the rest of the world is doing in a dramatic way. They'd rather have euros, or gold, or corn and soybeans than hold on to U.S. dollars.

The U.S. Dollar and Global Prices

Foreigners recognize that the U.S. continues to go into debt, continues to create more "liquidity," and now is penalizing dollar-holders by keeping interest rates low, as the Federal Reserve struggles to keep the financial services sector alive and the economy from falling deeper into recession.

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