The Rising Costs of Retirement
Inflation is a reality that everyone has to deal with. If you ask your elders, they would all have tales about how prices were much, much lower and how shocked they are now by how much things cost these days. In an ideal world, none of us would have to deal with inflation. We’d spend our lives working and saving up for retirement, and then we’d spend our golden years enjoying the fruits of our labor. Inflation, however, tends to sometimes affect that ideal projection of life in a very negative manner.
So, what is inflation, really? Briefly, inflation pertains to the rise of the prices of goods and services. While there’s an average inflation rate, the state of the economy at any given time gives inflation a level of unpredictability.
How exactly does inflation affect your financial status during retirement? Inflation affects two key aspects of your finances on our way to retirement:
It’s true that inflation doesn’t directly chip away at your retirement savings. In most cases, however, the interest rate on your savings is likely to be lower than the inflation rate. Basically, with the rising cost of everything, your savings account won’t be able to keep up.
Let’s illustrate this point. Right now, let’s assume you have 35,000 dollars in your savings. Think about how much you can buy with all that money. Now, let’s say ten years pass. If your savings, the 35,000 dollars in your account, remain the same, and yet prices for everything rise, then it’s conceivable that you won’t be able to afford as many items or services as you initially thought you would.
In the long run, the actual value of your savings won’t be as high as it’s supposed to be.
Once you reach retirement, budgeting becomes a crucial part of life. Since your main source of income is limited to your savings, and whether or not you’ve pension or some other retirement fund, inflation would greatly affect your way of your life—if not taken carefully into consideration. Keep in mind that pension and retirement funds usually come in once a month, and these come at a fixed amount. Your budget would take a considerable hit, given that prices for everything else have already gotten higher or that they steadily continue to do so.
The rising cost of fuel is always an issue that contributes to inflation. The cost of fuel has pretty much dictated the state of the economy for decades now, and there are no indications that it will change. A rise in the cost of fuel always affects everything. It makes shipping more expensive, thus necessitating an increase in the price of most goods and services. Once you’re retired, you’re going to feel the difference to its full extent, as your retirement savings may not be able to sustain the lifestyle you prefer because of the constant inflation.
Medical costs, specifically, are going to take a huge chunk out of your retirement savings. Let’s be honest; it’s during your retirement years that you’re going to need medical attention the most, and if you would look at the trend of medical costs, it doesn’t seem that these services would ever get cheaper.
Food is definitely a constant need. Food costs are always on the rise, particularly for someone in retirement, as there are certain dietary concerns to think about. This will eventually tie in with medical costs. There are also a lot of factors that affect the inflation of food costs, such as weather conditions and farming practices, along with advances in food technology.
What does One Do about It?
Like with most things, the effects of inflation on your retirement fund can be countered with proper planning. Anticipate your retirement needs. Customize your finances in a manner that addresses those needs with the eventual impact of inflation. This way, you can enjoy the supposed best years of your life, regardless of how much prices rise.
Author Bio: Article Written by Cristina Beltran – a blogger & writer at comparehero.my, Malaysia’s leading comparison website. This portal helps individuals in making the best decision by comparing rates from different finance and insurance providers.