Many different factors can impact a person’s ability to retire and make sure their savings last a lifetime. One of the most challenging elements of retirement to factor in is inflation. The cost of goods and services goes up every year. This can affect cost of living, your Social Security income, or what you pay for your morning cup of coffee.
The impact of inflation
In 1970, a cup of coffee cost just a quarter. Over time, the cost of that same cup of coffee has grown to $1.59. That’s an increase of 536 percent, or an annualized rate of 11 percent. And we aren’t even talking about fancy brand-name brews.
A person who retired in 2018 may have planned to live on a retirement budget of $60,000 a year. Taking inflation into account, 30 years later they would need more than $128,000 per year to maintain the same purchasing power.
To make the retirement equation more difficult to solve, we are living longer. And the longer you live, the longer you’ll need money to live. Many individuals do not know their odds for a long life because they only look at their family history, but don’t account for new medical technologies that continue to increase life expectancy.
For a married couple 65 years old, there is a 50 percent chance that one of them will reach the age of 90, and a 20 percent chance that one of them will make it to the age of 95.
Another contributing factor to consider is the fact that healthcare costs have risen at a rate much higher than that of overall inflation.
To put this increase in perspective, think about the cost of a college education when you were in your early 20s. Now think about what you spent for your own child to earn a degree.
This is essentially equivalent to the growth in healthcare spending over time and doesn’t even reflect the fact that we buy more healthcare as we age.
So, how do you manage variables like inflation and healthcare costs that are outside of your control?
At Nevada State Bank, we believe that working with an advisor to build a comprehensive retirement plan is the best way to be prepared for whatever your future may hold. A comprehensive retirement plan should define retirement goals and determine an appropriate strategy to reach them. Then, it should be updated periodically to reflect changes in variables like inflation and healthcare costs. This can help ensure that you not only have enough money to retire, but enough money to last throughout your retirement years.
To find resources to help you with retirement planning, or to contact an advisor, visit Nevada State Bank Wealth and Fiduciary Services at www.nsbank.com/wfs.