Final answer:
The most significant long-term problem for a retiree's retirement income is the loss of purchasing power due to inflation, significantly affecting retirees with fixed incomes such as private company pensions.
Step-by-step explanation:
The most significant long-term problem facing a retiree's retirement income portfolio is the loss of purchasing power over time due to inflation. This problem is paramount because retirees often rely on fixed incomes that do not increase with inflation, leading to a decrease in what their money can buy as time progresses.
Inflation's impact on retirement savings cannot be overstated. A fixed income, such as a private company pension, becomes worth less and less as the cost of living goes up. This decrease in purchasing power means that even with modest inflation rates, the loss can be substantial over decades. For example, a retiree losing just 1% to 2% of buying power annually due to inflation will experience a significant decrease in their standard of living over time.
Therefore, when planning for retirement, understanding and addressing the impact of inflation is crucial for maintaining one's financial health and quality of life in the later years.