Inflation Rates

Inflation has been higher than 10% before in the past...

These days a reasonable assumption used for the inflation rate is 3%.

     Over the years, annualized inflation rate has been higher than 10%. (13% in the 1970s!)

     Whatever the inflation rate is at the time you read this, you should make sure that your money is earning interest or return on investment at a rate that is higher than inflation. Otherwise, while your money is sitting in the bank earning 1-2% interest (which is the going rate of interest at the bank for checking and even savings accounts right now) the values of goods you wish to buy are increasing at a much faster rate.

     For instance, let's say that you want to save money to buy a car that costs $20,000 today, so you put it in the bank at the standard 2% interest. In 5 years time, when you are ready to buy that car, it will not cost $20,000 any longer... If the rate stays as low as it is now, then your same car will cost $20,600, but you'll only have $20,400 in your bank account. That's precisely why people invest!

     For your reference, the chart below shows both the annualized inflation and the actual rate on inflation in the US since 1914. Keep in mind that the years of your lifespan remaining will be like any other set of the same number of years on this chart... The only thing you can depend on is that the rate WON'T stay the same!