Today, I would like to focus on inflation. Inflation is like a silent "killer" - that is, killer to your hard earned savings. To the vast majority of us, inflation is that hideous thing, always lurking around, and strikes when we least expect it. High blood pressure has also been described as a silent killer because people who suffer from it don't feel it as the body adjusted to it and eventually the organs (especially the kidneys) fail and the person dies. In this sense, inflation and high blood pressure are alike.

When we are employed, we may not feel the impact of inflation as much, as we see our salary increase each year. Also small increases in prices (of food, transportation, groceries etc) may not make a big dent in our disposable income. So we ride along comfortably with inflation, just like a guy with high blood pressure. The best or "worst" way to see the full impact of inflation is through a longer time horizon - say 10, 20, 30 years.

In 1995, (22 years ago), my wife and I baulked at the condo prices which were selling for $500 psf. Up to that time, the properties we bought and sold were around the $300 to $400 psf range. And not too long ago, we didnt even think twice when we bought our latest investment condo at $1,200 psf. My uni fees were $680 per year in the early 1980s, my children,s uni fees were closer to $8,000 per year. My very first car set me back only $23,000 - a brand new Toyota Corrolla. Now, a new Altis Corrolla costs around $100,000.

What does it all mean to us when we plan for retirement when there is no more salary income?

For those planning to survive on $3,000 a month ($36,000 per year) in today's dollars, you will need at 3% inflation per year : (to maintain the same purchasing power of $36k today)

2017_____2027____2037____2047
$36k_____$48k____$65k____$87.4k

If you need $60k pa ($5k pm) in retirement, the amount you will need over the years just to maintain your current purchasing power, will be:

2017_____2027____2037____2047
$60k_____$81k____$108k____$146k

Those planning to depend solely on CPF Life payout will find themselves short of cash very quickly as the payout amount is fixed throughout your lifetime while inflation is relentless.

In my next post, I will discuss how to deal with inflation. Inflation can be a good thing too!