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How Rising Inflation Could Affect Your Retirement Plan

How Rising Inflation Could Affect Your Retirement Plan

June 04, 2021

As our nation continues to recover from the effects of COVID-19, one economic trend has been capturing news attention as of late: inflation. While some experts argue that the rising inflation is transitory, the rise has raised some eyebrows and some important questions. Will the upturn continue? How will the rising inflation affect my investments and my retirement? Even in normal times, anyone who’s planning for retirement or is already retired worries about running out of money. The potential for rising prices only adds to that baseline of anxiety. Here's what you should know:

Inflation On The Rise

Consumer prices are rising amidst economic recovery. In April, the Consumer Price Index (CPI) which measures a basket of goods as well as energy and housing costs, jumped by a greater-than-expected 4.2% from last year.1  Over Memorial Day weekend, gasoline prices hit a 7 year high (the highest for this holiday weekend since 2014.)  What's more, The Wall Street Journal noted the prices as a two-year peak on June 1, indicating prices exceeding 2019’s records.1,2 Used car and truck prices, which are seen as a key inflation indicator, surged 21%, including a 10% increase in April alone.1

Auburn Hills MI empower retirement 

Will The Trend Continue

With upward trending prices, an important question arises - Is the Federal Reserve ahead or behind in its monetary policy regarding inflation? Federal Reserve Chair Jerome Powell has said it could be a mistake to see inflation as a guest long overstaying its welcome.

“One-time increases in prices are likely to only have transitory effects on inflation,” Powell said. He added, “It will take some time before we see substantial further progress.”There tends to be a general expectation that inflation will settle down later this year around the 2% range targeted by the central bank. According to the New York Times, "The Federal Reserve says it expects inflation to average 2.4 percent this year and decline to 2.1 percent by 2023." Inflation at that level would be no big deal. Long-term investors with well-diversified portfolios of stocks and bonds could pretty much ignore it. However, Some highly qualified independent economists say the inflation rate could exceed 4 percent and even reach 7 percent over the next few years.3

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It Would Be Wise To Prepare

With reports of rising prices and talks on inflation, it can be difficult to know how concerned one should be. We advise you not to panic but don't ignore inflation either. In regards to your portfolio, this is another case in which focusing on your personal finances will likely be more beneficial than listening to the media buzz. If you have any questions or concerns, call or email us with any questions or concerns you may have.

It may surprise you how fast inflation can erode purchasing power. We created a calculator specifically for the cause and effect that inflation has on retirement. This calculator is designed to help you estimate how much more income you may need at retirement to keep the same standard of living that you have today. As previously noted, some highly qualified independent economists say the inflation rate could exceed 4 percent and even reach 7 percent over the next few years.Try our calculator and you can test your retirement plans against different inflation rates. 

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1. CNBC.com, May 27, 2021
2. Wall Street Journal, June 1, 2021

3. New York Times, June 4th 2021

4. CNBC.com, May 12, 2021

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite, LLC, is not affiliated with the named representative, broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.