Retirement Planning and Price Inflation

In a recent post, I warned advisors to be ready with answers to difficult questions. Here’s another one.

“If I follow your investment advice, will my retirement income keep up with inflation?”

In the past year, the Federal Reserve Bank has doubled the money supply. Will this cause higher retail prices? Imagine playing a game of Monopoly and starting the game with $3000 instead of the $1500 called out in the rules since the 1930’s. If you had twice the money, wouldn’t that make it easier to bid on Boardwalk and Park Place? Prices would rise because you’d have more money to spend.

When the Federal Reserve Bank pumps up the money supply, it causes prices to rise and bubbles to form. Bursting bubbles hurt owners of bubble-inflated assets such as tech stocks, mortgage backed securities, and real estate. Rising prices hurts families and especially hurts retirees.

Watch this short video to see how rising prices would affect a 92 year old who retired in 1973 at age 55.