How To Cushion Yourself Against Inflation
How To Cushion Yourself Against Inflation
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Home Page > Finance > How To Cushion Yourself Against Inflation
How To Cushion Yourself Against Inflation
Posted: Jan 18, 2008 |Comments: 1
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The biggest problem facing you when you plan your retirement fund – or start taking the money – is inflation. You may have fallen for government statistics that show inflation is low. Don’t believe it! The official figures understate inflation, probably by 70-100%. In other words, if they say inflation is 3%it is probably 5%. Over 15-25 years, inflation at even 3% will have a serious effect on your savings.
What’s worse is that a lot of the things that put fun into your life keep going up more than inflation – basically, anything that involves labor, from hairdressing, restaurants to golf clubs. Also, we can expect the price of gasoline to double over the next five years – and it will go even higher than that in 10-20 years time. This is not dependent on inflation but on the falling reserves of oil under the ground. What oil is there is less accessible, so it costs more to bring to market.
Here’s the problem: when you are talking about retirement, you are looking ahead a long time. Even if you are 50, it will be 15 years before you retire, and by that time almost everything you buy could cost twice as much as now. You are probably expecting to live to 80 or more, and that is 30 or more years on from now if you are 50. Think back to what things cost 30 years ago and you will get a shock.
So if you are saving for retirement, try to save double whatever seems a reasonable amount at today’s prices. One way to do this is to use a retirement calculator.
But what should you do when you retire? The normal thing is to buy an annuity which will pay you a guaranteed sum for the rest of your life. This will be a constant amount each month, but your allocateing power will decline each year.
Don’t put all your money into one annuity
I would never put all my money into an annuity. Keep some back and do something else with it. Of course, you need to consult an independent investment advisor, but your best bet is to put some money into bonds and some into conservatively managed funds. This is not time to take high risks, but you do want a fund or funds that will keep ahead of inflation. That is not too difficult so long as the stock market is strong, and you have the bonds to guard against any weakness in the stock market – and over a period of 20 years, there will be periods of weakness.
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Rex Truman is not retired but should be – instead he gives information at RetireWhenULike.com to assistance people save enough so they can enjoy retirement, ideally with an interesting job where they are in control.
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Article Tags:
retirement, retirement planning, retirement funds, retirement plans
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1. Franco Yardy 20/01/2008
I thank you so much for posting this article on the net. I found it very imformative, not that am about to retire now but in view of the recent credit crunch that is affecting the world markets I find it imperative that somone advise retirees on the economic recession on their savings and retirement plan.
And you have just done that. I had never really made the connection between inflation and retirement until now. Well, now as I continue with my working life I shall bear in mind the advise I have learnt from this article.
Is the the Northern Rock crisis part of this jigsaw?
I than you good sir. May God bless you for bringing this to my attention whilst am still able to plan for my retirement.
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Rex Truman is not retired but should be – instead he gives information at RetireWhenULike.com to assistance people save enough so they can enjoy retirement, ideally with an interesting job where they are in control.
Finding the highest CD, or certificate of deposit interest rates requires lots of research into brokerage firms and banks. Ask about different types of CDs and whether rates are going up or down before making an investment with tips from aninvestment portfolio manager in this free video on investing and personal finance. Expert: Gregory Bramwell-Smith Bio: Gregory Bramwell-Smith is the relationship and portfolio manager at Bramwell-Smith Associates. Filmmaker: David Pakman
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