Published On: Mon, May 2nd, 2016

Jeffrey Lipton of Fairmont Gloucester Reminds Retirees to Remember Inflation

Retirement savings is a popular topic of late. With a large section of North America’s population inching toward their golden years, ensuring they have saved enough money to live comfortably is very important.

Any good financial planner will tell you that a successful retirement savings plan starts long before retirement is even a consideration. Robust RSPs take into account a variety of scenarios and are often funded through numerous sources to avoid over-exposure in any one area.

Sound retirement savings plans also allow for inflation rates. However, recent reports indicate that the amount allotted for inflation fluctuation may be insufficient and will leave many pre-retirees surprised when they decide to exit their profession.

The average RSP takes an inflation average of 3 percent into account when forecasting for the future. However, the annual inflation rate from 1914 to 2016 is roughly 3.30 percent and has fluctuated by as much as 11.7 percent over the last century.

retired elderly

photo Alex Proimos via wikimedia commons

While inflation has been mostly equal in America and Canada, countries like Brazil have experienced hyper-inflation, which is arguably the most threatening of inflation scenarios. “Hyper-inflation can have a tremendous impact on retirees, rapidly evaporating their purchasing power and leaving them without sufficient retirement income to meet their required expenses,” writes Jamie Hopkins, a Forbes contributor.

What the inflation rate will be when one decides to retire is almost impossible to forecast when one begins to save for retirement. However, as retirement approaches, it becomes easier to analyze where the inflation rate will lie. That said, it may be too late to recoup from the loss a high inflation rate causes on an RSP.

Financial expert and Director at Barbados-based investment firm, Fairmont Gloucester Partners, Jeffrey Lipton, advises looking at historic data to make an informed estimation and explains that “examining 20 year trends can provide pre-retirees with a more accurate inflation rate and allow them to save accordingly.”

Fairmont Gloucester’s Jeffrey Lipton also notes that a realistic approach to retirement planning is key. “On average, each dollar you own loses purchasing power and thus value every year,” Lipton adds. “Once you retire, that loss is not mitigated by new income and can create a dire situation if preventative measures aren’t in place.”

For those preparing a retirement plan that takes effect in 20 years, investors should consider a calculated inflation rate average of 3.75 percent. At that rate, the estimated cost of living will be double in two decades.

It’s also important that those retiring today take the inflation average into account.

As US Money’s Scott Holsopple notes: “You could easily live another 20 years or more in retirement — time enough for your cost of living to double yet again.” That could make a nest egg that’s established a decade ago insufficient.

Holsopple, like Jeffrey Lipton, promotes being realistic about the costs associated with living through one’s golden years. “$50,000 per year in 2018 is expected to buy fewer goods and services than it did in 2013,” he wrote. “And in 2023, $50,000 will probably buy even fewer goods and services than it did in 2018.”

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