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Think Inflation When Planning Financial Future |
There are many calculators that you can buy or go online to use to estimate the effects of inflation on your desired savings or retirement. |
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Most of us would agree that it simply costs more to do just about anything today than 10 or 20 years ago. While inflation has abated somewhat with this very slow economy – I wouldn’t rule out the “I” word as out of the question for the future. For financial planning purposes, inflation has a very significant role in your future financial security and how you may plan for it today. For openers, make sure that you are factoring in some cost of living increase in your financial projections. This is especially true if you are saving for future expenses that have historically risen even faster than the overall consumer price index such as a college education or future health care needs. For general living expenses, I’ve seen a range of between 3 to 5 percent a year commonly used by planners. There is widespread concern that the influx of federal stimulus funds into the economy could cause higher inflation. While government policy makers had success at suppressing the inflation rate through their monetary policy decisions, the future for inflation remains unclear. Add to this lack of clarity some global unrest, hyper growth in the need for resources in the emerging parts of the world such as China and South America, and an energy-thirsty Western world, and higher inflation starts to sound plausible. Let me add another variable to this scenario if you are planning your retirement. When you retire, and I mean full-time retirement where leisure and family dominate your agenda, add an extra measure of inflation into your calculations. Whether it’s improvements to the house, more time on the golf course, more trips and time to buy gifts for grandchildren or more time on cruise ships – retirement living can be much more costly than your working lifestyle. In addition to having more time to spend money, it also seems like the cost of stuff that you want to do in retirement often inflates at a faster pace than consumer staples or basic raw materials. There are many calculators that you can buy or go online to use to estimate the effects of inflation on your desired savings or retirement. This isn’t something that you need to look at every month, but getting it done right the first time and periodically checking on it as circumstances or your needs change makes a lot of sense. John P. Napolitano |
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