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Reverse Mortgage Blog

Part 2: How Inflation Affects Your Retirement Plans

September 24, 2022

 

If you’re retired, close to retirement or just thinking about retirement, no doubt inflation has you wondering about your plans. The questions below represent popular search engine requests. How similar are they to reflecting your own worries?

What does inflation mean to retirees?

Inflation affects everyone, but you can be especially vulnerable if you’re retired. Those who rely on the kind of income sources once popular among previous generations can find themselves most at risk.

Inflation harms retirees as they generally live on a fixed income comprised of Social Security, pensions and withdrawals from their retirement portfolios. Sustained inflation over a number of years can drastically reduce your purchasing power, especially without cost-of-living adjustments in pension payments or strong investment markets to buoy retirement accounts.

How does inflation affect the way you plan for retirement?

Given the potential impact inflation can have, it’s essential to adjust the way you plan for retirement. This represents something new, as inflation has been relatively tame for more than a generation. Indeed, no one expected this current bout of inflation to be anything but transitory coming out of the pandemic. People are only now relearning how (and why) it needs to be incorporated into retirement planning.

“Inflation reduces your purchasing power over time. Over the past 30 years, inflation has averaged around 2.5% annually. That means a 65-year-old retiree who needs ~$50,000 of income to cover today’s expenses would need to spend about $80,000 in 20 years to maintain their purchasing power. If inflation spikes sooner, though, retirees who want to maintain the same lifestyle would also need to spend more money sooner.”

What rate of inflation should you use when calculating how much you will need in retirement?

While it may seem that inflation was “unusually” low in recent years, the fact is these low levels are consistent with the long-term rate of inflation. Except for an extended period of high inflation from the 1970s through the 1990s, the “low” levels we’ve recently experienced were similar to our historical average. Inflation averages 3% annually over time, but the recent inflationary trends are at a 40-year high.

Even this average, however, is not without its consequences.

Inflation is like high  blood pressure. It’s a problem, and many may not see its true effects until it is too late. You should have calculated how much you need each month to meet your expenses. The problem is your monthly spending will increase not because you are consuming or doing more, but because those goods or services simply cost more. If retirees have done their long-range planning correctly, they will have factored inflation into the calculation. However, high periods of inflation should bring the retiree back to reconsider current spending and what tactics need to be deployed (if any) to minimize the long-term effects on funding their goals.”

How will inflation affect my 401k or IRA?

If you haven’t retired, and possibly even if you have already retired, you may wonder what inflation will do to your retirement savings. It is this portfolio that retirees rely on. How it reacts to inflation can spell the difference between a comfortable retirement and getting a part-time job during retirement.

Inflation most acutely impacts retirees through diminishing their purchasing power and thereby increasing lifestyle expenses funded through investment portfolio distributions. Inflation is one of the reasons why it’s important to invest in financial markets And by “financial markets.

Over longer periods of time, cash returns do not keep pace with inflation. Therefore, the real value of an all-cash asset base will decline. However, through building diversified investment portfolios that utilize asset classes with historical returns that outpace inflation, retirees can create asset bases that grow over time. Retirees can then rely upon these portfolios to maintain the real principal value of their assets and preserve requisite cash flow distributions to support increasing expenses over time.

To learn more about how a reverse mortgage can help fight inflation and maintain or improve your lifestyle, go to my website at www.sunshinestatereverse.com . You can use my free reverse mortgage calculator to find out how much you can qualify for.

 Unfortunately home prices are declining. We are overdue for a correction but this time it is going to happen slowly. Every time your homes price goes down, it is that much less cash you could have pulled out. Stop being in denial.

Check out your currents home value at www.zillow.com and type in your address.

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Thomas Jackson profile picture
Thomas Jackson
I love what I do! because I really change peoples lives. So many of us think life is good , but how can it be so good when so many seniors are living from thier social security check. Sure, you can pay the bills but is that why you worked for all your life? Did you forget to have fun while retired? Ever imagine what it would be like if you could take trips? A cruise, or visit the kids more often? Do more for your grand kids? Do more for yourselves! Check out my website to find out more, and use the free reverse mortgage calculator to find out how much you may qualify for. We have peaked at the high end of home prices. Now it has started a slow quiet down turn. Follow your homes value on www.zillow.com Like you, I am also a senior citizen (but a young one at 66) so follow my blogs for weekly financial information we can use.
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I love what I do! because I really change peoples lives. So many of us think life is good , but how can it be so good when so many seniors are living from thier social security check. Sure, you can pa...
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