Final answer:
When planning for retirement, it is important to consider the effects of inflation. The investment rate, blended rate, and inflation rate should be used at different stages of retirement planning. By bringing figures from today to the beginning of the retirement period, we can account for the impact of inflation and make more accurate financial projections.
Step-by-step explanation:
When planning for retirement, it is important to consider the effects of inflation. This is because the purchasing power of money decreases over time due to inflation. By bringing figures from today to the beginning of the retirement period, we can account for the impact of inflation and make more accurate financial projections.
The investment rate, blended rate, and inflation rate should be used at different stages of retirement planning:
- The investment rate is used to calculate the growth of money invested over time. It is typically higher during the early stages of retirement planning when there is a longer time horizon for investments to grow.
- The blended rate is a combination of different rates of return on various investments. It should be used when considering a diversified investment portfolio.
- The inflation rate is used to estimate how much the cost of living will increase over time. It should be considered when determining how much money will be needed in retirement to maintain the same standard of living.