What Inflation Looks Like
Inflation is defined as the “decline in purchasing power over a period of time.” This relates to the increase of an average price level of goods and services, and in turn, it means that a unit of currency will effectively buy less than it did in the past. Typically, these rising prices occur gradually, so it can be difficult to notice just how much inflation is impacting your spending power on a year to year basis. But when it is tracked over a longer time period, it becomes easier to see just how much of an impact it makes. Looking at it another way, if your income does not go up, you will be able to purchase less over a period of time. As an example, if you had 9 cents to spend:- In 1916, it would purchase a quart of milk
- In 1966, it would purchase just one small glass of milk
- In 2017, it would only be able to purchase 7 tablespoons of milk
Average Prices in 2000 versus 2022
2000 | 2020 | 2022* (as of May 23, 2022) |
|
---|---|---|---|
Gallon of gas (regular unleaded) | $1.26 | $1.84 | $4.60 |
U.S. postage stamp | 33 cents | 55 cents | 58 cents (rising to 60 cents in July 2022) |
Loaf of bread | 93 cents | $1.45 | $1.61 |
Dozen eggs | 89 cents | $1.58 | $1.87 |
Sources: https://thepeoplehistory.com/2000.html / United States Bureau of Labor Statistics
Keeping Your Income Where You Need It to Be
Regardless of how much money you have saved, a secure retirement has more to do with the generation of income that lasts as long as you need it to. One way to do this is through an annuity. Annuities can pay out income for either a pre-set time frame, such as 10 or 20 years, or for the remainder of your lifetime, no matter how long that is. These financial vehicles can also be designed to increase the amount of income that you receive over time. For instance, cost of living riders adjust the dollar amount of cash flow that is paid out by an annuity each year. There are also inflation-protected annuities available in the marketplace. These annuities have their payments indexed to the rate of inflation in the economy. It is important to note that these annuities may have an upper limit, or “cap” on the amount of increase they provide on an annual basis. Other options for increasing income in retirement could include:- Increasing the amount or percentage of portfolio drawdown(s)
- Social Security cost of living adjustments