The cumulative effects of inflation are often overlooked by seniors planning for retirement. This oversight can take its toll when you run out of wages.
A member of our Wallowa community asked me a question regarding the difference between net income and NET income when planning a business.
For example, if you buy an item for sale in your retail store for $ 5 and sell it for $ 10, the difference between cost and sales is your bottom line. But this is not an accurate picture of the success of your business. To calculate the exact NET NET profit, you also need to take into account the costs of running the business, taxes, overheads, rent, labor, payroll taxes, pension liabilities, costs of health insurance benefits, interest on loans and all other business expenses. When this number is known, simple calculations will determine your NET NET return. A true and final result, after more than the obvious subtractions and tolerances.
If you’re like a lot of people, the older you get, the more effective you think about planning for retirement. There is no way to be 100% sure how long someone will live after retirement or exactly how much money they will need, so there are some basics you need to be aware of.
One of them – the certainty of inflation – is often overlooked by early retirees. It is only after several years of retirement that older people feel that their money is simply not going as far as it used to be and that they may have underestimated the amount they needed to create retirement. of their dreams.
Many retirement planners preach a strict gospel of “avoid risk at all costs”. But, is this really the advice for those between 5 and 10 years old?
What about the impact of inflation, not only on your daily purchases and the cost of goods and services, but also on your retirement savings? Actuarial tables indicate that a person who is currently retiring at age 65 could live another 20 years or more. Using a modest inflation rate of 3%, your cost of living could double in less than 25 years.
If your financial advisor seems overly concerned with protecting your wealth and has no strategy in mind for achieving growth that outweighs or exceeds inflation, you may need to get a second opinion.
Here are some questions you should discuss with your advisor as you enter the distribution phase of your financial life.
Cost of Living Adjustments (COLA) for Social Security will not keep pace with inflation. Social security is one of the main sources of retirement funding for the elderly.
While Social Security, unlike other investments, provides for periodic increases in the cost of living, these have never succeeded in compensating for inflation. Many financial experts believe that the Social Security Administration uses benchmarks that underestimate the actual rate of inflation. For example, from 2000 to 18, the cost of drugs commonly prescribed to the elderly increased by 188%. This dramatic peak caused the purchasing power of Social Security to fall by 34%. The lesson here is that while Social Security is an essential part of your retirement plan, you can’t expect payments to keep pace with inflation.
Investments and savings erode with inflation. Like water, inflation has a slow but dramatic ability to erode almost anything it touches.
Although the immediate consequences of inflation seem minor, over time the effects worsen, affecting all aspects of your life after work. To loosen the grip of inflation on your finances, consider investing in things other than bonds and CDs, which can have rates of return well below a conservative inflation rate of 2%.
The risk of inflation is real and seniors should take this into account when designing their retirement plan. Retirees and those nearing retirement need to actively manage their finances and understand the ramifications of inflation.
Nominal gains are unlikely to be enough to offset the risk of inflation. However, you have a say in where your wealth is invested. Educating yourself about the risk of inflation and other factors that threaten your nest egg is the first step in avoiding making mistakes with your money that you won’t have time to recover from.
As an avid outdoorsman, Joseph and the Wallowa area have been an integral part of Steve Kerby’s life since 1964. Steve is a member of Syndicated Columnists, a national organization committed to a completely transparent approach to money management. With over 50 years in the financial services industry, Steve specializes and focuses on the goals of each client. Visit stevekerby.retirevillage.com or call 503-936-3535 to find out more.