Inflation and Retirement Planning: How to Factor It In

How much money will you need when you retire? This is a difficult question for a number of reasons, and almost everyone underestimates their answer. First of all, a lot of people end up living longer than they plan to, and the money has to go a lot farther. A more subtle issue, though, is the factoring in of inflation. Have you figured out how inflation will affect your retirement fund?

Inflation and Retirement Planning

The value of money decreases over time. 20 years ago or so, if you went to the grocery store with a $20 bill, you could come home with at least a couple of bags full of groceries. Today, it will get you only a few small items.

When you start planning for your retirement, you need to plan at least 20 years ahead. When you start saving, you may think that $30,000 per year will allow you to live a modest but comfortable lifestyle. But if you’re, say, 45 now, how far will $30,000 per year be able to take you when you’re 65? Not nearly as far as you think.

Then, of course, inflation will continue even after you leave work. If, combined with social security and other sources of income, $30,000 per year is, in fact, enough to support you at 65, will it still be enough when you reach 85? And how much more do you need to put away, in order to compensate for this shift?

An Inflation-Proof Retirement Savings

There are a number of ways to factor inflation into your retirement savings. You can somewhat predict what the rate will be using an inflation calculator, though that will only give you a rough idea, rather than a hard and fast metric. It’s also important to maintain your investments during retirement, so that they can continue generating returns.

The other important step is to choose other investment options that are more resistant to inflation. A lot of people gradually move their stocks into stocks and money market accounts as they get older, but these aren’t as likely to retain their value over time. The same can be said of regular stocks, which can be significantly negatively impacted by the rising price of goods.

There are, however, a few investment options that aren’t subject to inflation, such as gold and silver. As physical commodities, they tend to retain their overall value over time. As prices go up, the spot price of gold rises as well, so that 20 years from now, that amount of gold will be able to buy approximately the same things that it can now.

Gold is also a safe haven that can protect you from the volatility of the stock market. By keeping a portion of your savings in gold, you have something to fall back on in case something happens to your other investments. Even if your stocks fail, you won’t lose your savings, as your gold investment is still intact.

Planning for retirement can be a daunting proposition in any event, and factoring in inflation as you save can be difficult, and require you to save significantly more than you thought you needed. However, if you understand how inflation works and the effect that it has on your nest egg, plan accordingly, and put some of your money into gold, you’ll be able to enjoy a stable, comfortable retirement, for years to come.

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