10.1.7 The effect of inflation
- 10.1.1 Different approaches and needs
- 10.1.2 Retirement planning attitudes
- 10.1.3 Your retirement needs
- 10.1.4 Your retirement age
- 10.1.5 Life expectancy
- 10.1.6 Your retirement lifestyle
- 10.1.7 The effect of inflation
- 10.1.8 Determine your retirement needs
- 10.1.9 Video: Estimating your retirement needs
- 10.1.10 Summary of key messages
Inflation is the rising cost of consumer goods. It affects your retirement needs in two ways.
First, the cost of the goods that you buy increases. Over 25 years, an inflation rate of 2.5 percent nearly doubles the cost of the goods you buy, as this chart shows.
| Number of years | If your annual expenses are $20,000 | If your annual expenses are $40,000 |
|---|---|---|
1 |
$20,500 |
$41,000 |
5 |
$22,628 |
$45,256 |
15 |
$28,966 |
$57,932 |
25 |
$37,079 |
$74,158 |
Second, it means that your savings lose value. Over 25 years, with an inflation rate of 2.5 percent, your savings lose nearly half of their value, as this chart shows. (This does not take into account the return on your investments—that is, the profit you make on any savings you invest.)
| Number of years | If your savings total $20,000 | If your savings total $40,000 |
|---|---|---|
1 |
$19,512 |
$39,024 |
5 |
$17,677 |
$35,354 |
15 |
$13,809 |
$27,619 |
25 |
$10,788 |
$21,576 |
With inflation both increasing the cost of the goods you buy and decreasing the value of your savings, you will need more money to maintain the same level of purchasing power over time. Take the rate of inflation into account when you project how much money you will need to cover your retirement years.
For more information on the effect of inflation and life expectancy on your retirement savings, go to Autorité des marchés financiers information on Retirement planning.
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