Understanding Inflation and Its Impact

Joel Johnson, CFP® discusses inflation and the impact it causes on this week’s segment of Better Money Atlanta.

How Inflation is Measured

The Consumer Price Index measures the change in price of goods and services in the economy.

This compares the cost of something one year ago with the cost of the same thing today. For instance, if the inflation rate is at 8%, an item that was $1.00 last year now costs $1.08.

The target rate of inflation is 2%, which can be manipulated by the Federal Reserve by adjusting interest rates.

How to Plan for Inflation

Retirees need to have a retirement income plan or projection that shows how much money they need in order to keep up with inflation. Answer these questions in your retirement plan:

• How much income do you want in retirement?

• How many raises will you need to give yourself?

• What interest rate or earning rate do you need?