There is a word that starts with the letter ‘I’ 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 now. The Labor Department reported last week that consumer prices surged 5% in May, the biggest increase in 13 years. That is 5% in one month.
So, all of us are paying more at the gas pump, the grocery store, the flower shop, the lumber yard, etc. Goods and services are going up across the board, and this means you have to 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, but historically, it is a very low increase or none at all. Here is the COLA 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%.
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) to 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.