Inflation can be challenging for retirees to cope with because it will eat away at the purchasing power of your savings. You will need to spend a little bit more of your savings each year to maintain your current lifestyle. But the impact of inflation will not be as bad as some people are saying. Here are six reasons inflation won’t prohibit you from retiring comfortably.
Your mortgage stays the same. Hopefully you will have paid off your mortgage by the time you retire. But even if you still have debt outstanding, your monthly payment on a fixed-rate mortgage will stay the same.
Not everything will be more expensive. Many items in your budget will become more expensive over time, but this is not true for everything. Electronics, for example, is one item where the costs usually seem to go down. The real reason we end up spending more money is actually due to the fact that we inflate our lifestyle. We don't spend more on a computer if we replace it with a similarly functional unit. We spend more because we used to have a desktop and now we want a laptop, which costs more to begin with. And we don't spend more on cleaning our house because brooms got more expense, but because we now use disposable products and disinfectants that are much more expensive. Cable TV costs are the same as the old days, unless you want extra or HD channels, which may cost more. Companies like Verizon offer coupons or promotions, but they only help to a certain degree.
Retirement contributions. Though it may seem hard to believe now, your company will once again give you raises for inflation in the future. Unless you are retiring this year, this means that your retirement contributions or savings can likely increase as well. Having more saved will help you reduce the effects of inflation.
Social Security payments are inflation indexed. There will be some form of Social Security when you retire no matter how old you are. Annual inflation adjustments to your Social Security checks give you a guaranteed way to keep up with current costs.
You can find alternatives. Downsizing is easier than most people think because there are so many alternatives available. If you always go with brand name products, discovering the world of generics might be the cure to your inflation woes. And for those who always go out to watch movies, get a Netflix free trial coupon and find out what watching DVDs at home can do for your expenses.
You can always consume less. I know it's doesn't sound that great, but if you have to, you will find a way to make do with less. Getting rid of one car in your household will probably account for 15 years of inflation increases on car costs. And if you can eat out less, the math works the same way. The good news is that you are likely to adapt to your new lifestyle extremely quickly. Before you know it, you might be wondering why you spent so much money in the first place.
David Ning runs MoneyNing, a personal finance site aimed at helping others change their habits for a better financial future. He suggests that everyone to sign up for an online savings account to get more out of our hard earned money.