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Three Reasons Why Inflation Won't Kill Your Retirement Savings

September 15, 2009

By Andrew Freiburghouse | Money Rates Columnist

So, Ben Bernanke says that this brutal recession has "very likely ended." For Money-Rates readers who hold money in CDs or savings accounts, this silver lining may appear obscured by a dark cloud:

Worries over inflation. Already, CD rates are too slow to keep up with even a moderate rate of price growth.


1. Foreign Goods Help Keep U.S. Prices Low

The assumption that as the economy improves, inflation will become a problem, discounts the global nature of the U.S. economy. Foreign goods, especially from China, are cheap enough to affect pricing power.

When you could only get toys from F.A.O. Schwartz, F.A.O. Schwartz could raise prices with impunity. Now, Walmart rules that out.

2. Conspicuous Consumption Is Idiotic

There will always be people who want to have the big, flashy car and the mansion that they can barely afford. But there are less of those people now, perhaps, than there have been in decades.

The price-sensitive mentality of the U.S. consumer, worried about unemployment and struggling under a heavy debt load, is another reason why inflation may have trouble getting off the ground.

3. Mortgage Rates Still Lower Than Low

What would you rather get, five percent on a CD or a five percent mortgage?

For most people, it is better to get a lower mortgage rate than to make more money on CDs. Low mortgage rates give smart savers the opportunity to build a sustainable cost structure for years to come.

A low mortgage payment makes retirement planning much easier.

Your responses to ‘Three Reasons Why Inflation Won't Kill Your Retirement Savings’

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Andrew Freiburghouse

29 September 2009 at 8:51 am

Yes that is well said. The less in taxes point may prove especially prescient.

james cohen

29 September 2009 at 8:38 am

Savers,mostly baby boomers,were forst to feel the pain since Bush. Almost as if it was are turn to suffer. We did nothing wroung execpt not spend blindly. I think the Feds are shooting themselves in the foot. There are so many of us that if we make no money with CD's, we spend less and PAY less in taxes. Reasnable?

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