Supply-chain issues, economic stimulus programs, and high oil prices have led to rampant inflation. The situation has caused price increases in the present day and concern for people approaching retirement.
Inflation is a normal part of economics. Governments typically like to see it around 2% to encourage people to spend money rather than hoard it. However, when rates hit 8%, it's a big worry for anyone saving for retirement.
If everyday goods and services' prices shoot up, your money won't go as far. A planned retirement pot that doesn't rise at least in line with inflation means you'll have to cut back on your current lifestyle.
The only way to ensure a financially comfortable retirement is through formulating a solid retirement plan. Here are some things to consider as part of your planning process.
Assess your financial situation
The first step to formulating a solid retirement plan is assessing your financial situation. You'll need the answers to a few questions, such as:
- What is your life expectancy?
- What sort of retirement lifestyle do you desire?
- What assets can be used for retirement income?
- Do you want to leave an inheritance to your children?
Answering these questions will help you calculate how much money you need for retirement.
The average life expectancy in the U.S. is around 80 years of age. If you retire at 65, that means you need an income that will last for at least 15 years. However, most retirees need to think along the lines of 20 to 30 years, especially if their health is good.
Which assets can you use for retirement?
There are a few ways to categorize the assets that can produce income for your retirement.
- Income assets: Rent generating assets like a rental home or property portfolio.
- Investing assets: Stocks, bonds, mutual funds, etc.
- Saleable assets: Your home(s), business, or collectibles.
When you understand these asset types and how they can generate income for your retirement, you can get a better idea of what sums will be available as income when you retire.
How will your spending change during retirement?
How much money you'll need on a day-to-day basis for your retirement comes down to the individual.
Many retirees believe they can reduce spending to about 70 to 80%. However, this figure will likely be unrealistic unless your mortgage is paid off. Add unexpected health expenses, and your spending could be closer to 100%.
For others, retirement is a time to travel, spend money on their grandchildren, or do all the things they've dreamed of but never had the time for because they were working. In some situations, this can lead to a spending increase, so be prepared.
Protect your future with a solid retirement plan
If you want a comfortable retirement, you need a solid plan. Economic factors like inflation will always pose a risk, which is why consulting with a financial advisor is hugely beneficial.
At IM Wealth Partners, we can help you find the right retirement plan based on your needs and lifestyle. Contact us today to get started.