Retirement Debt and Inflation

 

More and more people are beginning to see the necessity of retirement planning. Setting retirement goals and then living on a budget in order to accumulate savings has become a way of life for millions of Americans. It is possible to carefully plan for your retirement needs, save the calculated amounts and still end up with a financial shortfall. The culprit often turns out to be the cost of inflation, which was never factored in. The results can be devastating. Huge gaps suddenly appear in the budget which often gets filled with debt. Inflation is simply an increase in the cost associated with goods. For example, a gallon of milk may have cost your grandparents a nickel and that same gallon costs a dollar today. The product has not changed but the cost of the product has increased dramatically. This example shows the effects of inflation on a small scale but the results can often become much more dramatic.

This becomes an even bigger factor in retirement savings plans. It becomes essential to think in terms of future dollar values as opposed to current dollar values. Let's take a look at what happens if inflation is not factored in. A family determines that in 1980 they will need a total of one million dollars to live at same quality of life when they retire. Unfortunately, they neglected to factor inflation and it turns out that the actual amount needed will be more than four million dollars. Failing to consider the effect of inflation will a very sizeable gap. Chances are retirement will be delayed or postponed.

The most important step is to recognize the need to factor in these increases so when planning the future, simply factor in a yearly 3 - 4 percent increase. Planning today will prevent you from debt in the future.

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