Most likely
to worry about inflation in retirement were those ages 45 to 54
and those with incomes of $25,000 to $49,999. Still, this fear
wasn't confined by age or income. Nearly half of respondents
ages 18 to 34 as well as those with incomes above $75,000 say
they worried a lot that inflation would negatively affect their
finances during their retirement years.
"Fear of inflation in retirement runs deep and broad," says Ann
Koplin, Thrivent Financial's director of retirement marketing.
"Given that people's retirements can span 20 to 30 years or
more, individuals really need to consider the impact that
inflation may have on their long-term financial security."
What's the best way to confront this potential financial menace?
Koplin says the first key is the obvious one: building a
substantial retirement nest egg during one's working years. "The
more you can set aside for retirement, the more you'll have
available to deal with inflation," Koplin observes.
"Unfortunately, many people consider their nest egg the 'finish
line' for their retirement finances, when it really represents
the new 'starting line.'"
While inflation may be low in any given year, it's the
cumulative effect that can really add up. "We've experienced low
inflation in recent years, but even the constant nibble of 2 or
3 percent inflation over an extended period of time can take a
big bite out of one's purchasing power over the long haul. For
example, in 1990, the average cost of a gallon of gas was $1.34
per gallon, and a loaf of bread was just 70 cents," Koplin says.
The U.S. Bureau of Labor Statistics supports Koplin's assertion.
One dollar in 2001 had the same buying power as $1.25 today
(2011), according to the bureau's "CPI Inflation Calculator."
Twenty years ago that dollar had the buying power of $1.62
today, and 30 years ago it had the buying power of $2.43 today.
Given inflation's constricting effect, Koplin says it may be
wise for some retirees to keep a portion of their investments in
assets that have the potential for growth, like stocks, or
equity mutual funds. While these types of securities have
historically shown the most volatility - the largest ups and
downs - they also have historically fared well in relation to
inflation.