1. Return on investment and inflation
Is it wise to simply convert your assets to cash once you retire? Many seniors might think so, and many even take this step in an attempt to minimize risks. But if you’re too hasty with your money you might end up gaining nothing, then all of your waiting and hard work will have been for nothing.
The reason behind that is inflation. If you earn a 3% rate of return while inflation is at 3%, then your purchasing power has actually remained flat. You haven’t earned any extra money because the two rates balance each other out, reaching 0%.
Ideally, you want your rate of return to be bigger than the rate of inflation. On average, the inflation rate between 1983 and 2019 was 2.63%. Between 2010 and 2020, it averaged at 1.83%.
