InflationYour worst enemy in retirement
Inflation is defined as the increase in the price of some set of goods and services in a given economy over a period of time. It is measured as the percentage rate of change of a price index.
http://en.wikipedia.org/w/index.php?title=Inflation&oldid=185028717
Just as compounding interest is on your side when it comes to wealth creation, inflation works the same way, but against you as the price of just about everything goes (on average) up year after year. Some years more than others, some years even down in periods of so-called deflation, but in modern day economies it is a reasonable to assume that between now and your retirement the price of everything will go up by 3% per year.
Examples:
Price of an average house in 1920’s, 1940’s,1960, 1980 and now… so in 2020 and 2050 it will be … ???
Price of an ice cream
Hyper inflation …
Deflation
Deflation is the opposite of inflation. Deflation is the loss of money in the available money supply. For economists especially, the term has been and is sometimes used to refer to a decrease in the size of the money supply (as a proximate cause of the decrease in the general price level). The latter is now more often referred to as a 'contraction' of the money supply. During deflation the demand for liquidity goes up, in preference to goods or interest. During deflation the purchasing power of money increases.
Deflation is considered a problem in a modern economy because of the potential of a deflationary spiral and its association with the Great Depression, although not all episodes of deflation correspond to periods of poor economic growth historically. During deflation, while consumers can buy more with the same amount of money, they also have less access to money (e.g., as wages, debt, or the return realized on sales of their products). Consumers and producers who are in debt, such as mortgagors, suffer because as their (money) income drops, their (money) payments remain constant.
http://en.wikipedia.org/w/index.php?title=Deflation&oldid=182733584
Your worst enemy in retirement
Inflation is defined as the increase in the price of some set of goods and services in a given economy over a period of time. It is measured as the percentage rate of change of a price index.
http://en.wikipedia.org/w/index.php?title=Inflation&oldid=185028717
Just as compounding interest is on your side when it comes to wealth creation, inflation works the same way, but against you as the price of just about everything goes (on average) up year after year. Some years more than others, some years even down in periods of so-called deflation, but in modern day economies it is a reasonable to assume that between now and your retirement the price of everything will go up by 3% per year.
Examples:
Price of an average house in 1920’s, 1940’s,1960, 1980 and now… so in 2020 and 2050 it will be … ???
Price of an ice cream
Hyper inflation …
Deflation
Deflation is the opposite of inflation. Deflation is the loss of money in the available money supply. For economists especially, the term has been and is sometimes used to refer to a decrease in the size of the money supply (as a proximate cause of the decrease in the general price level). The latter is now more often referred to as a 'contraction' of the money supply. During deflation the demand for liquidity goes up, in preference to goods or interest. During deflation the purchasing power of money increases.
Deflation is considered a problem in a modern economy because of the potential of a deflationary spiral and its association with the Great Depression, although not all episodes of deflation correspond to periods of poor economic growth historically. During deflation, while consumers can buy more with the same amount of money, they also have less access to money (e.g., as wages, debt, or the return realized on sales of their products). Consumers and producers who are in debt, such as mortgagors, suffer because as their (money) income drops, their (money) payments remain constant.
http://en.wikipedia.org/w/index.php?title=Deflation&oldid=182733584