Inflation's Effect on Your Retirement

Some real life application of inflation on your American Life and why it needs to be factored into any medium- to long-term financial decision, such the size of your nest egg.

I chose to focus my last column on creating more awareness of inflation. Due to the high importance of this topic, I wanted to expand on it further this article as well.

Although I noted that the average annual inflation rate is 3.39%, I wanted to expand on this with some further statistics:

• The range of this mean came from a high of 18% in 1918 and a low (a period of deflation, actually) of -10.5% in 1921.

• There have actually been 13 years of deflation in the past hundred years with the most recent being in 2009 (-0.4%), but before then we had not seen a deflationary environment since 1955.

• 10 years had inflation numbers in the double digits.

To expand on my thoughts in my last article and in reference to in my article on the retirement equation, I thought I would give some real life application of inflation on your American Life, comparing the cost of living 30 years ago to now to give you a preview of what you should be prepared to potentially encounter 30 years in the future:

• $100 in 1983 has the same buying power as $234 in 2013, according to the Bureau of Labor Statistics

• Cost of a first-class stamp: $0.20

• Cost of a gallon of regular gas: $1.24

• Cost of a dozen eggs: $0.86

• Cost of gallon of milk: $2.24

(Source: http://www.1980sflashback.com/1983/economy.asp)

The takeaway from this is that inflation needs to be factored into any medium- to long-term financial decision, such as the amount needed for your nest egg, having a cost of living adjustment on your disability income protection and being cautious about your cash position in a low-yielding investment vehicle to name a few.

Jon C. Ylinen is a Financial Advisor with North Star Resource Group and offers securities and investment advisory services through CRI Securities, LLC. and Securian Financial Services, Inc., Members FINRA/SIPC. CRI Securities, LLC. is affiliated with Securian Financial Services, Inc. and North Star Resource Group. North Star Resource Group is not affiliated with Securian Financial Services, Inc. Please consult a financial professional for specific advice in relation to your individual circumstances. This should not be considered as tax, specific loan repayment for an individual or legal advice. 718232/ DOFU 8-2013.