Inflation is a killer. Salary's usually lag inflation. Often raises don't cover, so you lose buying power. That's until the employer makes an adjustment because they start losing people to the competition.
If you're on a fixed income it's especially hard. Even when invested well where perhaps you're assuming 2% inflation and a withdrawal rate of 4% ... if you're making only 6%, and inflation goes above plan your either tightening your belt or losing principle (faster than planned) or both. Now that's the simplified version since most investments do not grow in a linear fashion. Inflation will often hit when your investments are down ... it's no fun selling something at a loss when you know it will be a winner in a year or two.
The one place inflation really helps you is if you have a fixed rate mortgage. The lender is the one taking the hit. Your mortgage will start to look smaller and smaller as your salary and investments adjust for inflation. So, if you were lucky enough to take out a large mortgage when they were sub 3% (as I think Mojo was suggesting), can afford to cover it, and invested that money in something producing more than 3% ... you're making money now.
Last edited by rrlev; 11/24/23 06:56 PM.
