Retirement Investing

There's no doubt that "Retirees" must consider the possible effect of inflation on their long term lifestyle. Statistically, 65 year old retirees will live well into their 80's with the possibility of one spouse living into the 90's. During this retirement phase, prices of consumer goods, with only inflation as a cause, will most likely at least experience a doubling factor.

Stop and consider what are your retirement income goals? Do you need $50,000 a year to live when you retire? Or are your goals a bit more modest? Say you need only $30,000.

Whatever the amount, you must factor in the possibility that for every year you are retired, the prices of the things you purchase will increase.

How can you be prepared for inflation?  

 

• Live for it! Don't spend more than you are receiving. 
  Sounds simple but it's a reminder that a  budget is necessary even after you retire!
   

• Spend for it! Buy, those long term assets that you know you will need in the next few year. Don't use this as an excuse to purchase new items that you don't really need. But buy or set aside the money for a new roof or new car.  
   

• Invest for it! Don't be so conservative so that all your investments are "INCOME" oriented and "PRINCIPAL" secured. Leave room in your investment portfolio for some growth type stocks and/or mutual funds.  
  

Let’s take a look at an inflation chart to just “see” 
what inflation can do to our lifestyle!  

INFLATION RATE MEASUREMENTS

You can use this chart to help you estimate what "THINGS" will cost in the future. For example, if a new water heater costs $300.00 today and you expect inflation to be about 6% annually, then in five years the chart shows you that the water heater will cost 1.34 times what it costs today, $300.00 times 1.34 or $402.00.

Want a real shock? Calculate the future cost of a new car!  Say, that the car costs $20,000 today and car prices are expected to increase 5% every year. In five years that $20,000 car will cost you $25,600!! ($20,000 times 1.28)  

And that car you own at retirement, will most likely  go to “automobile heaven” before you go to heaven!  

THIS CHART REVEALS WHAT THE AFFECT OF INFLATION

CAN BE ON OUR OWN RETIREMENT FINANCIAL LIFE!  

I have modified the chart to HIGHLIGHT what I call the DOUBLING FACTOR. This factor shows you, at the various inflation rates, how long it will take prices to double. At 7% inflation, it's about every 10 years. At 6% inflation, it's between 10 and 15 years. ( actually it's 12 years)

If you think you need $XX  amount today, for some financial goal, use this chart  to estimate what $XX  will cost in the future.  

By the way, does this chart look familiar? It should because basically the same chart that we used earlier,

Inflation is really a form of compounding or growth. It’s a negative kinda growth because it “steals” , silently, I might add, our ability to purchase goods and services. It literally can cut our purchasing power in half or more during our retirement years!  

I’ve also included a titled chart:

 
as a way of reminding you of what inflation can do to our spending power over a 20 year retirement.  

I’ve filled in some of the expenses that I’ll most likely have when I retire and left room for you to fill in a few items you might want to consider in your retirement. Let’s take a look at the fourth row—EYE GLASSES. I recently spent $200.00 for a new pair of glasses including the eye exam. Basically, I’ve assumed that glasses will INFLATE at 6% per year and that I’ll need to buy a pair 20 years after I retire. By looking at the INFLATION CHART, I see that 6% for 20 years will inflate today’s dollar to $3.21. So I multiply the recent $200.00 by $3.21 to calculate the future cost of those glasses at $642.00! Guess, I’ll only buy glasses every 3 or 4 years!  

Fill in some of your own expected or daily living expenses!

For those of you who may just be starting on the road to financial freedom, please be sure that you see the outline,       

Many of my worksheets are being converted to Interactive Excel files
that you can use here on this site or download to your computer.
There's a list of these worksheets at: