There is a word that starts with the letter ‘I’ and that describes a key element in retirement planning very well that also starts with the letter ‘I’. Unfortunately, most people don’t factor in or consider this key element when it comes to their retirement planning. The first word is ‘invisible,’ and the second word is ‘inflation’.
Inflation is often described as the invisible key element that needs to be included in a successful retirement plan, but that is often overlooked or not considered. The cost to live generally increases each and every year. There are also times when inflation really spikes, which is currently happening.
Last year, at this time, The Labor Department reported consumer prices surged 5% in May, the biggest increase in 13 years. That is 5% in one month. Many people thought that was as bad as it was going to get. Unfortunately, as we all know, inflation continued to get worse, and still continues to get worse. So, all of us are paying more at the gas pump, at the grocery store, at the flower shop, etc. Goods and services are going up across the board, and this means you must live with less or spend more to maintain your lifestyle.
Unfortunately, cost-of-living increases are not built into most sources of retirement income. Most pension income plans do not have a cost-of-living adjustment (COLA) built into their income. This means if your pension payment is $2,000 per month, it will never increase to account for cost-of-living increases. Social Security does have a COLA built into it, however, historically, it has been a very low increase or no increase at all. Here are the COLAs for Social Security for the last several years: 2015 = 0%, 2016 = 0.3%, 2017 = 2%, 2018 = 2.8%, 2019 = 1.6% and 2020 = 1.3%. Last year it was up a better amount, but that increase was erased by increasing Medicare premiums for most people.
This means it is vitally important to have your retirement account set up properly to account for inflation and provide additional income to your plan each year. So, how do you do that? Visit the Prepare Institute website (www.theprepareinstitute.org) and find a retirement course or class near you.
Content is for educational and informational purposes only. It is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. You should contact your retirement and tax professional before utilizing any of the information in this article.