NerdWallet: Is inflation bad enough to delay retirement? Start crunching the numbers.

by | Jun 15, 2022 | Stock Market

This article is reprinted by permission from NerdWallet.  About 1 in 8 Gen Xers and baby boomers say they’ve postponed or considered postponing retirement due to inflation, according to a March 2022 survey by the Nationwide Retirement Institute. With an inflation rate over 8% and hitting a 40-year high, coupled with a stock market that’s seen a double-digit percentage drop since the start of the year, people’s concerns aren’t misplaced.

“We’ve had conversations with multiple clients in the last six months,” says Mark Rylance, a certified financial planner in Newport Beach, California. “Every adviser has clients that push the envelope with spending, and they’re probably not going to change their spending habits, and those are the people who are at risk.” If your stop-work date is on the horizon, here’s what you should understand about how inflation affects your retirement. Related: Inflation wallops retirees on fixed incomes — how to copeWhy inflation matters Inflation represents how much the cost of goods and services has gone up over a period, usually one year. If inflation on a particular item is 8%, that typically means that it now costs you 8% more than it did a year ago. “In the simplest terms, if a retiree hypothetically spends $50,000 per year on variable expenses, and that $50,000 inflates by 8.5%, what used to cost $50,000 now costs $54,250,” Rylance says. “The threat to retirees is that their expenses go up forever and their investment returns don’t keep pace.”When to run the numbers If you’re planning to retire in the next year or two, you need to understand what you spend on expenses now that prices are higher because that’s how much your savings will have to cover. “We have to look at our day-to-day living expenses as well as our big expenditures and other plans that might be on the horizon,” says Nicole Wirick, a CFP in Birmingham, Michigan. “From there, we then look to what income sources we have available to fund those needs.” In other words, what are you expecting from Social Security? Do you have a pension? Do you have any other passive income sources, such as a rental property? Do you have any major spending plans, like a trip around the world? …

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