Things that go "Boom!" get our attention. Sparklers are pretty, but firecrackers make our hearts race. Literally or metaphorically (explosive anger; a stock market crash), it's the four-alarm fires that make us jump.

In investing, though, subtle changes are most devastating, which makes a ho-hum event like gradual inflation a silent retirement killer.

Inflation doesn't lead the nightly news or make for an arresting photo montage -- it's an abstract, pointy-headed economics term that's about as exciting as drying paint. It's the air slowly leaking from your tires. But inflation's effect on your future is as devastating as a blowout on a busy highway.

So, is inflation running your portfolio to the shoulder of the road?

Decaf dollars
Do you remember what a tank of gas, a loaf of bread, and a movie cost 10 or 20 years ago? Those were the days, right? The effect of inflation (the gradual tendency of prices to increase over time) makes for interesting cocktail party chatter.

Today it might seem criminal to charge $2.37 for a latte. But we can afford it (or are at least willing to splurge a bit, otherwise Starbucks wouldn't be on every other street corner). At even half that price, our grandparents would have gone bankrupt buying a cup of joe each morning.

But if Gram and Gramps were still in the workforce today, they probably wouldn't wince when the barista rang up their order. Their salaries would have kept up with the cost of living.

But their investments would have withered.

Years of diligent savings -- $100 a month for 20 years earning 8% -- would come to $60,000. That's a lot of lattes.

Don't order a double shot just yet. Put yourself in their shoes (that same investment scenario -- $100 a month for 20 years earning 8%). Sixty grand in 2026 dollars just ain't what it is these days. Nope, the spending power of your hard-earned money two decades from now will be cut in half. That's inflation's way of saying, "Thanks for your patience all these years. Here's a check for $30,000."

That decaf soy latte can quickly become a financial burden for those living on a fixed income.

When $1 million isn't worth $1 million
Historically, inflation runs between 3% and 4%. Using the Rule of 72 (sorry, another pointy-headed concept), that means the purchasing power of a dollar is cut in half every 18 to 24 years.

It's a slow burn -- one that's easy to overlook when you're focused on the snap, crackle, and pop of your investment returns.

Start with $1,200 in an S&P 500 index tracker such as Fidelity Spartan (FUND:FSMKX) or Vanguard 500 (FUND:VFINX) and add $20 each month to your investment in giants such as Johnson & Johnson (NYSE:JNJ) and Intel (NASDAQ:INTC) perpetually (a total of $13,200). If the market keeps up with its historical annual average of approximately 10%, you could have $1 million by around age 52. But in 2056, if inflation were to keep up at a 3% pace, $1 million would only buy you $238,000 worth of stuff.

What does that mean in real-life terms? In a recent issue of Motley Fool Rule Your Retirement (click here for a free peek), certified asset management specialist Doug Short illustrated the life cycle of a couple from age 22 to death (age 95). He showed that even with lower expenses in retirement (lower or no mortgage, no more child-rearing costs), the household needs more money for a 30-year retirement than it did during the couple's 43 working years.

Let's not leave them hanging. To end up with $1 million in inflation-adjusted dollars, they'll have to up their initial investment to $10,000 and add $55 per month. After 50 years they'll have about $4.7 million, or about $1 million in inflation-adjusted dollars in the year 2056.

Defy the effects of gravity
OK, so you don't have tens of thousands of extra dollars to deploy. On to Plan B.

Supersizing your savings isn't the only way to keep the ravages of inflation at bay. How you deploy your investment dollars over the years (the asset-allocation part -- again, not the sexiest of financial topics) is just as critical to making sure your finances don't need emergency resuscitation when you're already retired, said Short.

His research shows that the conventional wisdom of moving the majority of your money into "safe" fixed-income investments such as bonds or Treasuries can be dangerous for your long-term spending power. The key is to balance volatility and risk, and not overweigh the latter. (In his Rule Your Retirement column, Short offered a "sanity-check" formula to help perfect your portfolio's mix of equities and fixed instruments.)

Savers scared that their money won't be able to cover the occasional latte have two additional strategies at their disposal:

  1. Continue saving: Retirement doesn't automatically mean the end to saving and growing your wealth. Again, tweaking that mix of stocks and fixed-income investments will help you keep up with those whippersnapper investors. Keeping the income stream open is also a way to boost savings. A Putnam Investments study found that 68% of retirees who went back to work say they did so because they wanted to. The remaining 32% said they returned to the workforce for financial reasons.
  2. Live on less. Scaling back seems like an obvious piece of advice. But being flexible with the all-important retirement withdrawal rate may be your ticket to keeping up your standard of living. Short says that reducing early retirement nest egg withdrawals can allow for accelerating inflation adjustments in later years. (In the Tools section of the Rule Your Retirement website -- free to subscribers -- the "Am I Saving Enough? What Can I Change?" calculator provides inputs to assist your planning.)

Stop inflation in its tracks
Inflation. Asset allocation. Withdrawal rates. (Is that paint I hear drying?)

Granted, these aren't the head-turners of the money world. But when ignored, they can silently kill your long-term dreams.

Accounting for the silent portfolio predators just got a little easier for Rule Your Retirement subscribers. We added the DirectAdvice online Financial Planning Tool -- a comprehensive planning guide that will show if you're on track to meet your financial goals (everything from retirement savings to funding your kid's education to having enough insurance). The tool saves your information, offers advice (which you can then bandy about with us and other subscribers on our dedicated discussion boards), and helps you track your progress.

If you're not already a subscriber, grab a free copy of the newsletter, and while you're at it, go ahead and test-drive the DirectAdvice tool. If you find a leak in your retirement plan, we'll help you change the tire.

This article was originally published Jan. 5, 2006. It has been updated.

Dayana Yochim is not a trained firefighter. She does not own shares of any company mentioned in this article. Intel is an Inside Value recommendation. Johnson & Johnson is an Income Investor pick. The Fool has a flame-retardantdisclosure policy.