There are several ways that inflation, defined as diminished purchasing power over time, affects a 401(k) or similar defined contribution-style retirement plan.
The most significant impact will be on the amount of time accumulated assets will last. Fear of “outliving one’s savings,” as well as other sources of income in retirement, is common. Having to pay far more for goods and services required for everyday living will have an adverse effect on the portfolio, severely decreasing the income it provides.
However, there are inflation-mitigation products and strategies to safeguard hard-earned assets. For instance, equities potentially outpace inflation over long-term time horizons, although they come with heightened risk.