from Birch Gold Group:

Retirement savers might be staring down the barrel of a rough decade (or two) ahead. That means your magic number, a goal like “saving $1 million for retirement,” could get a lot more challenging, if it’s possible at all.

What’s your magic number?

If you’ve done basic retirement planning, then you have a good idea exactly how much you need saved away in order to live the life you want too after retirement. For example, Fidelity recommends retirement funds of at least 10x your annual income.

The specifics don’t really matter right now. The important thing is, you know what your magic number is.

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There’s just one problem… Your magic number is a moving goalpost.

We’re not just talking about the hedonic treadmill or the retirement expenses savers often overlook. We’re talking about the actual spending power of $1 million, or whatever your magic number is.

As Motley Fool explains:

$1 million may not stretch nearly as far as you’re hoping it will. In fact, you may be shocked at just how little income you’d actually end up with if you hit your $1 million goal but didn’t do so until far in the future.

See, most people don’t think of their savings in terms of “purchasing power.” No, we all tend to think of our wealth as equivalent to some number of dollars.

The same Motley Fool article explains why this matters: “[…] if you’re working now on saving $1 million for a retirement that’s 30 years away, your nest egg is going to be worth far less in real terms once you take inflation into account.”

Inflation always eats away at the buying power of every dollar you save. It’s like the story of Pablo Escobar:

Pablo was earning so much that each year we would write off 10% of the money because the rats would eat it in storage.

Inflation is like those rats, eating away at your savings.

The farther away your retirement date, the more your return on investment will factor into your magic number. (By the way, have you already decided to start adjusting your magic number for inflation every year?)

What if you aren’t retiring 30 years from now? What if you’re planning to retire soon?

Your buying power could be in for a bumpy ride, even if you already have $1 million saved for retirement. So let’s take a closer look at the insatiable inflation rats…

Consumer Price Inflation to the Moon!

Overall inflation has been skyrocketing over the last two months of reporting, jumping from 1.7% in February to 4.2% in April 2021. That also means official CPI inflation is at its highest rate in a decade. (In a strange coincidence, this was also the last time Biden was in the White House as VP.)

You can see how the last decade has played out in the line graph below.

source: tradingeconomics.com

Overall CPI has risen 247% from February to April 2021 in just 3 months. That’s steep but not quite unprecedented in U.S. history. On the other hand, the trend doesn’t leave much room to hope for a sudden reversal, at least in the near term.

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