What is the impact of inflation on retirement savings and income?

Inflation can have a significant impact on retirement savings and income. Inflation refers to the general increase in prices of goods and services over time, which decreases the purchasing power of money. If retirement savings are not growing at a rate that exceeds inflation, the savings may not be sufficient to cover expenses during retirement.

For example, if an individual plans to retire with $1 million in savings, but inflation is 2% per year, then the purchasing power of that $1 million will decrease over time. In other words, the same amount of money will not be able to buy as much as it did when it was first saved. This means that retirement savings need to grow at a rate that exceeds the rate of inflation in order to maintain their purchasing power.

Inflation can also impact retirement income. If an individual has a fixed income during retirement, such as a pension or annuity payment, inflation can erode the value of that income over time. This means that the same amount of income will not be able to buy as much as it did when it was first received. To combat this, some retirement income sources may be adjusted for inflation, such as Social Security benefits. Additionally, investing in assets that historically have kept pace with or exceeded inflation, such as stocks or real estate, may help protect against the negative impact of inflation on retirement savings and income.