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Don't Discount Inflation When Planning for Retirement

As seniors' spending patterns change, so too does their exposure to rising prices.

Figuring out how much you'll need for retirement requires factoring in many variables: how long you plan to work, your life expectancy, how much you've saved so far, and so forth. But one factor that often gets overlooked and that could play an important role in your retirement spending habits is inflation.

We're all used to the idea that prices tend to rise over time, and while we're working we have the good fortune--hopefully--of getting periodic pay raises, at least to help cover the rising cost of living. But once you are on a fixed income, inflation can become a retirement savings scourge, eating away at the purchasing power of your nest egg. For example, to match the spending power of a retirement account worth $1 million in 1990 would require $1.75 million in today's dollars.

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