“If you take the number 72, and divide it by an inflation rate, that’s how long it takes for the price of something to double.”
So, if inflation runs at a constant 2%, it will take 36 years for the price of goods and services to double. If inflation rises to 5%, it will only take about 14 years for prices to double.
This helps to explain why I remember buying a pint, when I was 30 for £1, when now £4.00 is more normal. The 300% price increase is really just 3% inflation over around 25 years.
Calculating compounding inflation in your head is beyond most of us, but we do intuitively understand “the price doubles”.
Thinking about how prices will double (and perhaps then some) over the span of a retirement, even at ‘just’ 3% inflation – and reflecting how you’ve probably seen one doubling already during your working years, and two since your children – can help us to understand the real impact that inflation can have over time. And recognising how much more quickly prices double when inflation is high is a helpful way of understanding how higher inflation can affect our lives.
If you want to plan your finances to better prepare yourself for inflation during your retirement, please get in touch.
Philip Wise | email@example.com
Managing Director and Chartered Financial Planner