Will my retirement nest egg be enough to live comfortably when I’m done working?
Living will be slow and my needs will be simple.
I look at the growth in my retirement savings, the cost of “things”, and my life expectancy, and wonder if my savings are sufficient to buy what I’ll need.
But, turns out, the analysis is far more complicated.
What I didn’t realize until very recently is that steady inflation is a GOAL of federal monetary policy. Each year, the Fed wants to see 2% inflation.
Policy makers think that 2% inflation represents a good balance between price stability and employment.
If the Fed gets it right and inflation is a steady 2%, the hurdle for my retirement savings just got higher.
In the course of just ten years of my retirement, what cost $100 today will cost $122 at the end of the decade. And $164 in 25 years.
This assumes that inflation rates do just what economists want them to do.
How often does that happen, I ask you? [Read more…]