“Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man.” -Ronald Reagan
When approaching retirement the main question a retiree will try to answer is “How much money do I need to cover my annual expenses“. While this is certainly a question that has to be answered, there is another one that must be considered as well – “What will my annual expenses be in 10, 20, or 30 years?”
The term “fixed income” is used far too often when discussing retirement investing and planning. Fixed income suggests you should be able to decide today how much income you are going to need each year of retirement. But because of inflation we know that our expenses are not going to be fixed, so we should not plan for our income to be either. If you plan to withdraw the same amount from your retirement account annually then you will be losing purchasing power each year due to inflation. And many people underestimate the effect inflation has on their retirement plans. While we have seen wide swings of the inflation rate with highs above 10% in the late 70′s and early 80′s, the general rule of thumb is to plan for an annual rate of 3%. So how does that 3% affect your spending power over time? READ MORE
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