Inflation measures the rate at which prices for goods and services rise over time. When inflation is high, each rupee buys fewer goods and services. For example, if inflation averages 6%, something that costs ₹100 today will cost ₹179 after 10 years. Your savings lose value if they don't grow faster than inflation.

Nominal return is the return you see on your investment statements. Real return is what you actually earn after adjusting for inflation. If your fixed deposit gives 7% interest but inflation is 6%, your real return is just 1%. This concept is crucial for retirement planning because you need your investments to outpace inflation to maintain your lifestyle.

To protect your wealth from inflation, you need investments that generate returns higher than the inflation rate. Equity investments have historically delivered 10-14% returns, outpacing India's average 6% inflation. Real estate and gold also serve as inflation hedges. Keeping too much money in savings accounts or low-yield FDs can result in negative real returns.

When planning for long-term goals like retirement or education, always factor in inflation. A goal of ₹1 crore today might require ₹3.2 crore in 20 years at 6% inflation. Use inflation-adjusted calculations to set realistic targets. Review and increase your investments periodically to account for rising costs and changing inflation rates.