Higher Inflation Could Hurt Your Retirement
Here’s a wake-up slap for all the gray hairs out there.
There’s a growing threat to the retired and about-to-retire population that is getting almost no attention in the mainstream media.
It strikes older people on fixed incomes the hardest, and if you don’t plan for it, it will turn your retirement into a nightmare.
It takes no prisoners. No one is excluded.
What is it?
Most of us remember the crazy days of double-digit interest rates and inflation rates that ran so high, so fast that stores didn’t even bother putting prices on their goods. Rates were moving up too fast to keep pace.
Thankfully, we’re not heading back to those crazy times. But we are seeing real increases in the inflation rate, which, if not dealt with properly, can cause major problems in retirement.
In May, the inflation rate was 2.8% – the highest it’s been in years. And all indications are that it’s going higher.
To most people, 2.8% doesn’t seem like an unreasonable number until they look at it compared with how much their income increased – or didn’t increase – over the same period.
That’s a deficit of at least 0.8%.
For most, 0.8% isn’t earth-shattering, but if current life expectancy numbers are correct, that 0.8% will add up over the 20- to 30-year retirement most of us can expect.
And when the real cost of a measly 0.8% per year over two or three decades finally hits home, it will be a major slap in the face.
All costs (food, cars, clothes, etc.) will continue to move up, so your income has to increase as well. If it doesn’t, eventually the deficit between the growth of your income and higher costs will eat you alive.
The day-to-day small price increases don’t usually set off any alarms. We seem to absorb them readily.
But it’s the big-ticket items that occur only every few years (like a roof or appliance that needs to be replaced or a new car) where the real effects of inflation are driven home.
According to the consumer price index, a refrigerator that cost $500 in 1990 costs $988 today.
The cost of everything is steadily increasing every year, and the rate of those increases is growing too. Your retirement plan has to provide for that fact.
Inflation was virtually nonexistent for years and lulled many of us into complacency. But it is back, it is real and it is moving up. And the best way to wake up broke in your 80s is to ignore that reality.
This is no joke. It is the one of the biggest threats to our financial security, and you must plan for it or prepare yourself for a much lower standard of living in your later years.