Inflation and the retirement you were promised.

— The inflation you don’t see eating your retirement

The 2% path is the Fed’s target. The 5% path is the 1970s happening to you.

Across the 8 complete decades of post-1950 CPI data, U.S. inflation has averaged 3.5% per year. The 1970s ran at 7.2%. The 2010s ran at 1.8%. The 2%, 3.5%, and 5% paths in the chart are not scenarios pulled from a hat. They are, in order, the 2010s, a typical post-war decade, and the 1970s. All three have happened, on U.S. soil, inside a single career.

The planning mistake is to pick one and call it the answer. The 2% path is the policy target, not the realized number. A retirement plan that only works in the 2% world is a plan that requires the Fed to succeed every year for thirty straight years. That has not happened. The 1970s are not a tail event. They are a decade that occurred. Your plan should work in the middle path and survive the high path.

The right move is not to forecast inflation. You cannot. The right move is to own assets that reprice with it. TIPS and I-bonds do this explicitly. Equities do it eventually. Fixed-rate nominal bonds do the opposite. The allocation question stops being “what is my expected return” and starts being “how much of my balance keeps up when the basket of groceries runs hot.”