Long and Short of Inflation

Albert Einstein once said "Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn't, pays it"

We discuss an example where a hypothetical retiree has $2.5 million in retirement savings and is withdrawing $100,000 annually. Cash and other more stable investments are suitable for fulfilling short-term income needs. However, it's unlikely that these will keep pace with inflation.

Compounding not only applies to rates of return, it also applies to other rates, like the rate of inflation.

The latest inflation report showed an overall increase in the consumer price index, or CPI, of +8.6% compared to 1 year ago. The implications of inflation are evident in the short term and around the dinner table; however, mathematically, the impacts of inflation are more significant over the long term.

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