If we’ve learned anything over the past few years is that inflation has become a huge problem for retirees. It can make it harder to live on your savings, and it can even damage how long your money will last.
But what exactly is inflation? Why should we care about it? And how can you protect yourself from its effects?
The easiest way to think about it is that inflation affects the value of your retirement income and how much it buys. Imagine if you had $4,000 of income back in the 1970s. You’d be living like a king. What does $4,000 buy you today? For some people that barely pays the mortgage.
Inflation affects your lifestyle and it can cause your money to run out years earlier than you ever planned.
If you’re working, inflation may not be that big of a deal since your work income may be increasing to help counter those higher costs. But for those who are retired, inflation can be a silent killer!
Inflation erodes the value of your savings because it increases the cost of everything else in the economy. In essence a dollar today doesn’t buy what it did last year.
So what do you do?
Alot of retirees know they need higher returns on their investments just to keep up with inflation. And what that normally means is they are forced to get more aggressive with their investments just to earn something. What that’s causing is people getting riskier with their money as they get older. The opposite of what they should be doing.
So how bad is inflation anyway?
Who knows! The government is changing what they use to determine what inflation really is. While they say it might be 6%, they are excluding alot of categories where inflation may actually be way over double digits.
So what can you do?
Here are our Top 3 Pro-Tips:
#1 Figure out what your new lifestyle expenses are? If there are things you are spending money on but don’t use or need, get rid of it.
#2 Have a Retirement Income Analysis done on your overall financial portfolio to make sure your money will still last as long as you do considering what inflation now is. We did an analysis for a 50 year old recently, with inflation at 2% her money last past age 100, but with inflation at 4% her money runs out by the time she reaches 80.
#3 Redesign and reallocate your investments so that you can actually get increasing income from your money in the future to counter inflation not just for where it is now, but for what it could be in the future.
That’s SMART financial planning!
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