Don’t Underestimate Inflation - Plan Now!!

By Anna D. Banks, GCDF

Inflation is an important aspect of retirement planning and you simply cannot afford to overlook it. Failing to consider inflation during retirement planning can lead to a financial disaster. Most of us would love to believe that life is going to be great post-retirement with fewer worries, no major responsibilities, and all the time in the world to do what you like. Unfortunately, all this will be possible only if you have saved prudently for your golden years. Inflation is inevitable and only those who plan ahead can survive the increased costs of living due to inflation after their retirement. Let us assume that you retire at the age of sixty-five with an average annual income of $60,000. However, the purchasing power of this amount would go down by almost forty to fifty percent in about twenty years. Thus, in order to maintain the same standard of living that you could enjoy for $60,000, you need to have almost double this amount to sustain the increased costs of living. Such is the effect inflation can have on your daily lives if you fail to prepare yourself in advance. With inflation rising steadily with an average growth of three percent per year since 1626, you need to ensure that your income increases with the rate of three percent every year during retirement.

Well, the good news is that with the growing number of investment options readily available in the financial market, it’s not very difficult to plan for your future. You can count on the pension plans that will automatically shield you from increased cost of living however, you need to check with your employer to know the exact amount you will receive through these plans.

Saving for the future

Start saving as early as you can, as sooner you start, you are left with longer time to invest and multiply your money. Set small, realistic goals based on your current financial needs and the amount of money you can put aside to begin your financial retirement planning.

Have you considered a 401K plan?

It’s perhaps the easiest and the best way of saving your hard earned money for your life after retirement. Also popular are the IRA plans however, you need to understand what's at stake and how such plans will benefit you before you go for any of these investment options.

Allocation of assets

How you divide your financial portfolio between bonds and stocks can have a huge impact on your financial gains in the long run. Financial experts strongly emphasize of stock investments due to the tremendous potential such investments have to render high returns over long periods of time.

Investing in a property

With remarkable tax benefits and easy finance options, property investments have emerged as an important investment vehicle. As you build equity and settle your mortgage loan, you may hardly have any monthly expenses except escrow payments on property taxes.

You may also consider consulting with a good financial expert or retirement expert who can suggest suitable investment options after assessing your income, assets, and financial liabilities. In addition, they are also the first to know about any new investment option that has newly come in the market and how it can benefit you. Having a good understanding of the financial market, they can also predict which financial companies will sustain the high fluctuations in the market and can be regarded as a safe bet.

© 2008 Anna D. Banks, GCDF

ANNA D. BANKS, GCDF, is a passionate advocate for baby boomers in exploring their priorities, planning and setting goals for the next stage of their lives. Assisting her clients to attract and build a professional and personal life consistent with their values is not just a goal of Anna’s, it’s her passion. Her diverse work experience in business, education and financial services enables her to help the diverse population of baby-boomers with their life, career, and personal finance coaching needs. Anna is currently Adjunct Faculty at Essex County College, where she teaches Career Development & Management. Please place a post on www.AnnaBanks.com or email your questions to me at Anna@AnnaBanks.com.
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Author's Note:

Do you have any questions about career development or lifestyle changes for Baby Boomers, which you think others, like you, would want to know the answers? Please place a post on www.AnnaBanks.com or email your questions to me at Anna@AnnaBanks.com.