Retirement Gal

All Things for a Secure Retirement

  • Home
  • About
    • Terms of Use
  • Contact

Inflation as Retirement’s Silent Killer

  • Retirement
Share:
fb-share-icon
Tweet

Here’s some eye-opening statistics for you: At a conservative inflation rate of 2.5%, your dollar today will be worth about 78 cents in 10 years. That same dollar will be worth only 61 cents in 20 years, and only 48 cents in 30 years. Think about how that could impact your lifestyle in retirement.

One of the greatest increases we’ve seen is in the cost of health care, something retirees must prepare for. As has been mentioned before in other posts, today it is estimated that a couple retiring at age 65 will need $260,000 to meet health care costs.

As you look toward retirement, everything will likely cost more, from needs, such as medical expenses and food, to enjoyment of a social lifestyle. How can you help prepare for the inevitable?

It all starts with a sound and thoughtful retirement income plan. If you don’t have a strategy for inflation, it can seriously diminish your purchasing power. So, you must take the necessary steps to help protect yourself now and discover some strategies to help you stay one step ahead of inflation.

Inflation can be dangerous for retirees, especially ones who rely on fixed incomes. Let’s say your fixed income in retirement is $50,000, and that seems to be enough because your yearly expenses are less than that. Let’s say your income need is $40,000, providing a $10,000 surplus.

Here’s the rub: Although your income is fixed, expenses are not and will continue to rise because of inflation. Eventually your $40,000 in annual expenses could grow to $60,000, which would clearly be a problem if your income is fixed at $50,000!

One thing you can do to help reduce the impact of inflation is to include an inflation assumption in your calculations of how much annual income you’ll need. Another important step is maintaining an investment portfolio that can potentially provide returns well above the inflation rate.

As you plan for your retirement:

Build potential “big ticket expenses” into your retirement plan

That way if you get hit with unexpected or unplanned expenses, you’ll be better prepared. If a new product is developed that will make your life easier, such as a driverless car or eye surgery that allows you to see better than you have in years, you’ll be glad that you built in that buffer.

Assume a reasonable rate of inflation.

From 1982 to 2011, the CPI-E (Consumer Price Index for the Elderly) increased at an average rate of 3.1%, while Consumer Price Index for Urban Wage Earners and Clerical Workers rose at an average rate of 2.9%.

Prepare to be flexible in the future.

While no one can predict the future, it’s essential to be as flexible during retirement as you were during your working years. When inflation is high, plan to be more frugal and reduce those extra expenses as much as possible while still enjoying your retirement. Take advantage of senior discounts. Vacation closer to home. Volunteer to be an usher for your favorite plays and concerts to enjoy the entertainment without the expense.

Following those three steps won’t solve all your retirement questions, but they will go a long way to helping make sure you aren’t overlooking retirement’s silent killer.

Of course, no one can predict exactly what inflation will do. But it’s a safe bet it won’t disappear — and even a mild inflation rate, over time, can erode your purchasing power and even set back your retirement lifestyle.

Source: http://www.kiplinger.com/article/retirement/T037-C032-S014-inflation-can-crumble-your-retirement-lifestyle.html

Inflation Retirement Income Retirement Planning
April 20, 2017 Melanie

Post navigation

How Earned Income Affects Social Security Benefits in Retirement → ← John and Jane Average

Connect with Us

RSS
Facebook
Facebook
fb-share-icon
Twitter
Visit Us
Follow Me
Tweet
LinkedIn
Share
YouTube
Follow by Email
Financial Perspectives

More from Us

As part of Financial Perspectives, we share our unique view through these other affiliated blogs:
Financial Perspectives
Investment Edge
Retirement Corner
The Sharp Chartist

Recent Posts

Expect the Unexpected

Expect the Unexpected

Share:

More Info
10 Ways Retirement Has Changed Over the Last Decade

10 Ways Retirement Has Changed Over the Last Decade

Share:

More Info
It’s RMD Season!

It’s RMD Season!

Share:

More Info
2020 Adjustments for Taxes and Contributions

2020 Adjustments for Taxes and Contributions

Share:

More Info
Social Security 2020

Social Security 2020

Share:

More Info
How Life Expectancy Impacts your Retirement Plan

How Life Expectancy Impacts your Retirement Plan

Share:

More Info
Like Squeezing Blood Out of a Turnip

Like Squeezing Blood Out of a Turnip

Share:

More Info
Breaking Bad Habits

Breaking Bad Habits

Share:

More Info
Break Out Those “Childproof” Locks

Break Out Those “Childproof” Locks

Share:

More Info
Real (Purchasing) Power

Real (Purchasing) Power

Share:

More Info

Disclaimer

The information provided on the Blog is provided for informational purposes only and should not be used as a substitute for personalized professional financial advice. Participation in any way with the Blog does not constitute an investment advisory, financial or retirement planning engagement. You should consult with your investment adviser or another financial professional before making any investment decisions. While all information on the Blog is gathered from sources that we deem to be reliable, we cannot guarantee the completeness and/or accuracy of such information. From time to time general investment guidance may be given in the Blog in response to questions asked by readers of the Blog. There is no guarantee as to the risk, returns, and performance of any investments referenced herein.

Copyright Retirement Gal and Financial Perspectives | Terms of Use