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Inflation and Retirement: Don’t Let It Get in the Way

Inflation: what does it really mean?

Some perspective: In 1960, a home in the US had a median value of $11,900. The median price in 2010 was $170,000!

Inflation is a very real risk for retirees and those nearing retirement; however, most investors do not take inflation into consideration in their retirement plans. According to a study published by the Society of Actuaries, only about 70% of those planning for retirement take inflation into account. While that’s a great start, everyone needs to understand how inflation can affect their retirement planning and goals.

Retirement benefits such as pension and Social Security do not adjust for annual inflation. Many people planning for retirement or even retirees themselves do not realize this, and do not plan accordingly. For instance, if the annual rate of inflation is 3% on average, over 10 years a retiree will need to withdraw about 30% more money from their retirement account than they planned to maintain the lifestyle they’re enjoying today. In other words, what costs $10 today, at a rate of 3% annual inflation, will cost $13 in 10 years. That might not sound like a lot, but it can make a world of difference when you’re living on a tight budget with only a small amount of wiggle room.

Investing in alternative asset classes is a great way to take inflation into account. Real estate investing is especially helpful; real estate you own will be bought at today’s price and rentals adjust for inflation, giving you monthly income that adjusts for inflation. Gold and other precious metals are another valuable alternative asset class that is not vulnerable to inflation. There are many opportunities for the self-directed investor to flourish regardless of inflation.

To discover more about investing strategies that don’t leave you at the mercy of inflation, give us a call at 1-855-60-iPLAN (1-855-604-7526)