Prices Have Risen
(Dec. 2020–Dec. 2021)
|Utility Gas Service||
|Meat, poultry, fish, and eggs:||
Source: Bureau of Labor Statistics, 1/12/22
How could the value of a nickel worth $3.2 million go unrecognized for years? In 1962, collector George Walton was on his way to a coin show when he died in a car accident. His family inherited the rare Liberty Head Nickel and had it appraised. It was declared fake and stuffed in a drawer. But at the 2003 World’s Fair, the coin was reappraised and found to be real. Ten years later, the family sold it for $3.2 million. For decades, the rising value of the coin went unrecognized.
Similarly, the cumulative effects of inflation can go unrecognized in retirement. Inflation has spiked recently, but it hasn’t been talked about much for the last 10 years. While price changes are slight on a day-to-day basis, the effects are significant over time. Since retirement can last 30 years or more, let’s look at the impact inflation could have on the price of products and services and how your income will need to keep up.
First, Inflation’s Impact
In January 2022, inflation was 7.5%—the highest it’s been in 40 years.1 It feels like a shock because, for the past 10 years, inflation has averaged only 2.1%.1 Prices haven’t increased equally for all products. For example, some prices have increased far more than 7.5% (see Figure 1).
While inflation may not be this extreme in the future, it’s still something to think about. One way to consider the impact of future inflation on a 30-year retirement is to look back 30 years. Let’s compare prices from 1991 compared to prices in 2021 (see Figure 2).