Inflation And Your Income

With every year that passes, our cash or fixed assets lose value because of inflation, and the cost of our necessities continue to increase.

Older Americans can remember the times when interest rates were low, and the word inflation was rarely used or heard. However, during the past 50 years, as our economy has become more intertwined with the other nations of the world, inflation has become more a part of our vocabulary and something we must be regularly concerned with.

And for America’s growing number of retirees, inflation is more than just a concern, but something that we must constantly worry about. Each year, inflation increases the cost of health care, food, transportation, our housing and almost everything we need or want gets more expensive. This is bad news for practically everyone, but it is especially bad news for the many retirees who are on a fixed income and have limited cash reserves.

As inflation slowly increases, the cost of almost everything retirees will be forced to cut back on their expenses or find new sources of income. In most cases, this means they will eventually be forced to start depleting their cash reserves, and hope that their money will last until they die.

While a slow inflation rate of 4 percent might not appear threatening, remember that over a 10-year period that 4 percent grows to 40 percent – meaning that the cost of everything has or is going to increase by 40 percent.

In order for retirees to maintain their same standard of living, they must find significantly more income in order to maintain their same standard of living. For example, if you are currently spending $50,000 a year to maintain yourself or your family, you will need to increase your income to $70,000 to keep the same standard of living.

For most retirees, this will involve a combination of both factors:
Closely monitoring your expenses, and more closely monitoring your investments and/or financial reserves.

However, you really can’t afford to wait. Each year that passes without you compensating for inflation means that you lose that much buying power to inflation.

Retirees do not need to panic because of the continued inflation because while inflation eats away at buying power, as a general rule the same inflation increases the dollar value of your investments.

The obvious solution is to have your cash reserves and investments grow faster than the combination of the inflation rate and you’re spending. This is not a difficult process, and can readily be achieved by strategically positioning assets, without sacrificing safety or guarantees.

A Financial Planner can assist you in making sure your assets are invested wisely. Why wait? Contact our office today.