VOL. 128 | NO. 12 | Thursday, January 17, 2013
Rays of Wisdom
Dana and Ray Brandon
Factor Inflation in Your Retirement
By Ray and Dana Brandon
Ray’s Take Did you realize that just a 2 percent annual inflation rate would result in 27 percent higher prices in a mere 12 years? If inflation were at 3 percent during that time period, prices would soar 43 percent. Three percent is the historic average inflation rate, but it has been much much higher at times. We have all been lulled into complacency in recent years with historically low inflation rates.
Let’s say you were retiring now and believe you need $60,000 annually for a comfortable life. Just 20 years from now, inflation would boost that amount of money to $120,000. That’s using that 3 percent inflation rate average again. Imagine what you would need if we had a decade of high inflation like the 1970s. I recommend planning for a life expectancy to age 95. For most retirees, that’s more than 20 years of planning.
A survey by the Employee Benefit Research Institute showed that only 42 percent of Americans have attempted to calculate the amount of money they will need for retirement. Even among those who do try to plan for their future, many don’t factor in on-going inflation.
Right now, Social Security has a built-in cost-of-living adjustment, which might take off some of the pressure. If you put off receiving Social Security benefits until at least the “Normal Age Requirement,” you’ll not only have a chance to receive higher payments, you’ll also benefit from the cost-of-living adjustments of the years you didn’t receive payments.
There’s ample evidence that the specific type of inflation experienced by retirees is actually higher than general inflation rates. In other words, the majority of bills paid by retirees go up even faster! When determining what you need to save for retirement, be sure to allow for continuing inflation. The 3 percent annual rate seems to be a fair rule of thumb to follow right now. The inflation rate may fall, but you can expect it to change. It won’t stay lower forever, but neither will it stay high.
Dana’s Take Inflation affects most material goods, so one way to hedge against inflation is to invest in intangibles like time, faith and love.
The price of a gallon of gas or milk may rise, but an hour of time with a friend or loved one never changes. An hour of prayer or meditation still has no price tag. Walking the dog or visiting a neighbor can’t be indexed. Volunteering with those less fortunate provides great dividends but costs nothing.
A shared laugh or a kind word has no price but can be worth so much. Giving your time to someone who cares about you can have far more value than any gift from a store.
In our final days the things we value most are rarely things at all.
So, when the cost of material things seems out of reach, reach out with time, faith and love and count your abundant blessings.
Ray Brandon is a certified financial planner and CEO of Brandon Financial Planning (www.brandonplanning.com). His wife, Dana, has a bachelor’s degree in finance and is a licensed clinical social worker. Contact Ray Brandon at email@example.com.