This week, I’m talking about why inflation matters in retirement. 

So far this week, we’ve discussed the general problem with inflation in retirement, so today, let’s look at the state of the world today and explore the possibility for higher inflation ahead. 

While I have no immediate concerns about higher inflation ahead, the ever-increasing national debt, and trillions of dollars of fresh stimulus being pumped into the economy because of Covid, higher inflation in the coming years appears more likely. 

In June of this year, an interesting article came out in The Economist. The title of the article: “Don’t worry about inflation—yet”. 

I would tend to agree with this sentiment. Higher inflation is unlikely right now. Businesses (except for the ones selling hand sanitizer) are unlikely to have the power to increase their prices until the economy turns around, so consumer prices are not heading higher anytime soon. 

But the higher our national debt becomes, the fewer options we have to deal with it without higher inflation. When the national debt is high, the government will have higher interest costs and higher payments to its creditors. It needs money to pay these higher interest costs and debt payments, which means it needs higher revenue (i.e. taxes) or it can print money. Too much money floating around in the economy will lead to higher inflation if not managed well. 

So should you worry about inflation right now? Probably not right now. But it would also be unwise to live in denial that higher inflation is ahead. And as I explained earlier this week, even moderate inflation in the 4-5% range can be devastating for your portfolio and your lifestyle in retirement.

That’s it for today. Thanks for listening. My name is Ashley Micciche and this is the One Minute Retirement Tip.

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