I remember how when I was growing up, my mother always told me she could buy five candy bars for a quarter when she was a kid. I just thought they must have been really cheap back then. Have you ever tried explaining inflation? Anyway, I hope you’ve saved enough money in your piggy bank because you’re going to need it. These days, we’re all living longer. And even though Federal Reserve Chairman Ben Bernanke has said he can control inflation, it’s easy to see on my chart of inflation expectations that the market doesn’t believe the chairman.
Let’s say you retire at 65 and inflation is at 3% for the next five, ten, and fifteen years. Today’s $50,000 will have the purchasing power of $43,000 in year five, $37,500 in year ten, and $32,000 in year 15. That’s assuming the Fed controls inflation at 3%. Based on the recent monetary base (chart 2) explosion, these numbers might look conservative. That’s the reality we’re facing. It might be time to stock up on candy bars.