I’m fairly risk-adverse so it was a revelation when I realized how damaging inflation can be to any plan. The scary headline? Things that cost $100 today could cost twice that in 20 or 30 years!

The Consumer Price Index (maintained by the US Bureau of Labor Statistics) seems to be the gold standard when it comes to forecasting as they’re the keeper of historical data. I chose the “CPI-E” which indexes costs typically associated with the olds. If you want more info on that index go here: 

https://www.bls.gov/opub/ted/2012/ted_20120302.htm

Bottom line: I’m guessing inflation will average about 2% a year from here on out. Trends this year have me worried that I low-balled that given the overall rate has been close to 5% over the last 12 months (and nearly 25% for energy costs!!!). But, I’ll wait a year or two to re-evaluate my average and hope that this is just one, bad year.

I’m sure it’s obvious why this is a risk but, to be clear, it means your retirement funds need to grow at least as much as inflation every year to stay on plan. Social Security income will be adjusted every year for inflation, which is good, but it may not be adjusted enough to cover the gaps – especially if a chunk of your retirement income is from 401k or similar sources. 

If you want to play around with “what if” scenarios feel free to use my publicly available “COLA Calculator”. It’s a simple spreadsheet that quickly estimates cost-of-living adjustments (COLA) based on whatever inflation rate you think will apply. Enjoy!