You Forgot To Consider Inflation
When you’re working, inflation might not be felt as strong if your salary increases along with the prices. For this reason, you might forget to consider inflation when making your calculations for retirement. But for those on fixed incomes, such as retirees, inflation can significantly affect your standard of living by decreasing the purchasing power of your income.
“On average in the USA, we see that the prices of goods and services rise by 3% per year,” said Michael Hardy, a certified financial planner and partner with Mollot & Hardy in Amherst, New York. “This means that over a 20-year time period, your $100,000 of retirement savings will likely be worth in terms of buying power 60% less.”
What To Do
If your retirement planning did not consider inflation, you’ll probably need to save more than previously planned, Hardy said. “I find that most people fail to account for this change, and it ends up costing them dearly years later.”
Apart from saving more to offset the impact of inflation, claiming your Social Security benefits in a later stage could also be an option. If you wait until you turn 70, you can maximize the benefits and boost your monthly income. On top of that, the Social Security Administration’s cost-of-living adjustment will be applied to that higher amount. “Now a greater proportion of your income will be inflation-adjusted,” Littell said.
