"Inflation" is the tendency of prices to rise over time. If inflation is 3% per year, a dollar today will be worth only 97 cents next year. You need to account for inflation when calculating how much money you need to retire. Even a low rate of inflation adds up over the long run. At 3% annual inflation, prices will double in roughly 23 years. A $6 movie ticket would cost $12. A postage stamp would cost 66 cents. Inflation means you can't save for retirement based on the cost of things today. You must assume they'll cost more tomorrow and increase your savings accordingly. | ||||||||||||||||||||||
The Effect of Inflation |
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