Inflation is generally defined as an increase in prices due to the declining purchasing value of money. To give just one specific example of the power of inflation, it’s why a hamburger at a fast food restaurant that might have cost ten cents 50 years ago now may cost one, two or even three dollars today. While year-to-year price changes due to inflation are sometimes barely noticeable, over time they can add up to a considerable reduction in the purchasing power of your hard-earned dollars and cents.
Nowhere is the influence of inflation more noticeable than it is to those planning their retirement; that’s why it is essential that anyone making long-term financial plans take inflation into account when strategizing their financial future.
Average inflation rates and your savings
Let’s say that you have calculated your long-term financial needs and estimated that you need, say, $50,000 a year to live. To reach that goal you will save properly and invest wisely – both sound financial strategies, to be sure. But failing to take average inflation rate increases into account could still put your financial future in serious jeopardy.
Specifically, if the average inflation rate is, say, 2%, in five years you will need $55,000 year to maintain the same cost-of-living; in 10 years you will need $61,000 year, and in 20 years you will need almost $74,000 year!
The inflation specific goods and services are rising even faster
Additionally, there are certain goods and services whose prices seem to rise in this country at rates far above average inflation rates. Medical costs, first of all, are growing at rates that far outpace this national average; since your medical needs will most likely only increase as you age, you should consider targeting even more of your retirement funds for this purpose. Food and fuel costs can also rise dramatically at rates that outpace inflation, so simply estimating a 2% annual price rise for these expenditures may also leave you short.
The good news: you can fight inflation in your retirement planning – starting now
Fortunately, there are steps that can be taken to mitigate the impact of inflation in your retirement planning. First, consult an online calculator at such websites as Bankrate.com, Moneychimp.com, and Money.CNN.com to help you accurately predict your retirement needs. Second, consider retiring later; even a year or two delay of your retirement plans could help both increase your savings and delay your Social Security. Third, account for inflation by investing in certain low risk funds that will enable your money to grow before, during, and even through your retirement years, ideally in ways that will keep pace with inflation.
Please note this is only general , and that everyone’s situation is different; we also urge you to consult a financial expert in this area to get more information and help you adopt the financial strategy that best meets your needs. That said, the bottom line is that the more you educate yourself now about inflation’s role in your retirement planning, the more likely you will be to live the life you both expect and deserve when those years are upon you.
Nothing above is meant to provide financial advice. You should meet with appropriate professionals for such services. If you have a structured settlement or annuity and would like to speak to J.G. Wentworth directly about getting cash for these future payments, call the company anytime at 877-227-4713.