How to Combat Inflation for Early Retirement
by John Bearss, Retirement Specialist
This week I will explore Roadblock Number 5 according to Larry Barrett’s article in the Financial Planning Magazine entitled the 7 Roadblocks to Early Retirement.
Roadblock #5 – Underestimating the Effects of Inflation
Inflation is the biggest risk to any retirement savings plan, and woe to any retiree who underestimates its effects. Inflation is the increase in the money supply, which results in a sustained increase in the price of goods and services over time. Most experts agree that retirees need to assume an annual inflation rate of 3-4%, but a good retirement plan should account for periods of high inflation as well.
If the annual rate of inflation is 3% but your salary rises 5% each year, that’s ok. But if you’re retired and on a fixed income, you need to make sure that your investments earn more than the rate of inflation. Otherwise, you’re at risk of running out of money because goods and services will cost more than you’re earning. This is where an annuity can be of great value because an annuity is the only investment that can guarantee an income stream as long as you are alive even if you live long enough that your asset is depleted.
So don’t let inflation sneak up on you. As with any good financial plan, make sure you have prepared and know how to combat inflation.
Thank you for joining me this week for your Retirement Minute.
Interested in more strategies that will help you with early retirement? Contact Retirement Specialist John Bearss by email: [email protected]