How to Fight the Money Thief (a.k.a. Inflation)

Forget the Joneses. When it comes to saving for retirement, what investors really need is to keep up with inflation. Because bit by bit, year by year, inflation steals away our purchasing power.

We all intuitively understand inflation (grumbling allowed). But its destructive power might not be fully appreciated.

Let’s take the example of someone who bought $1,000 worth of goods in 1988. That was 25 years ago. Today, it would take $1,973.83 to buy the same amount of goods – though your taste has probably improved since the days of Benetton sweaters and Duran Duran tapes. That’s a 97% increase, almost double the cost.

Now let’s apply that to retirement savings. Take a look at the impact of inflation on future income needs, assuming a moderate three percent annual inflation rate.


Clearly, strategies to help investments keep pace with inflation are critical considerations for retirement investors. U.S. treasury inflation-protected securities (TIPS), as well as real assets such as real estate and commodities, can increase the opportunity to achieve a real rate of return above inflation.

Each of these options has its own inflation-hedging and longer-term risk/return characteristics, so a balanced approach is important. Investors should work with a financial professional to create the strategy that’s right for their needs.

Past performance is no guarantee of future results.

Principal Funds, Inc. is distributed by Principal Funds Distributor, Inc.

Fixed-income investment options are subject to interest rate risk, and their value will decline as interest rates rise. Lower-rated securities are subject to additional credit and default risks. International investing involves increased risks due to currency fluctuations, political or social instability, and differences in accounting standards. REIT securities are subject to risk factors associated with the real estate industry and tax factors of REIT registration.