For Mark Roberts’ Use: When we talk about retirement planning, we tend to hone in on a specific savings goal. Most people decide that they want to retire at a certain age, and they need to accumulate a specific amount of money in savings before they can do so. We base this dollar amount upon your income needs in retirement, which of course depend upon your lifestyle. The amount you save needs to provide for regular withdrawals that will provide the income you need to stay afloat.
But wait! When you calculated those numbers, did you consider the impact of inflation? With most of us expecting a retirement that could last two decades (or even more), inflation is a very important consideration.
We think of inflation as the increase in prices for the products and services that we use. Each year, inflation causes prices to rise just a bit, although the rate can vary depending upon economic conditions. You might not notice if bread or milk cost a few cents more today than they did last year, if inflation is slow. But you will definitely notice a difference in prices, from the beginning of your retirement as compared to the later years!
What that means is that the income you plan for the first year of retirement probably won’t sustain you ten or fifteen years down the road. But luckily, we have ways of incorporating inflation into your overall retirement plan. Certain investment vehicles, like variable annuities, stocks, and variable universal life insurance policies, can help your money grow at a faster pace than the rate of inflation.
The flip side of this “solution” is that investment vehicles that grow more quickly are also the ones that carry more risk. That’s why you should generally avoid the “eggs in one basket” approach, and seek to diversify your portfolio instead. The goal should be to grow your assets enough to account for inflation, while also protecting a portion of your money from excessive risk. You should also rebalance your portfolio every few years, as conditions shift or your needs change.
Schedule an appointment with us, and we can help you decide how to best protect yourself from inflation.