With all of the unanswered questions floating around in today’s economy (like “When will the recession start?), one thing is fairly certain…
Today’s economic uncertainty is likely to stick around for a while.
With that in mind, at some point you might wonder if you’ve saved enough to enjoy a comfortable and stress-free retirement in the face of that uncertainty.
Is saving $500,000 enough? $1 million? What about a cool $2 million?
Keep in mind, it’s quite possible you’ll be saving to have enough income for a period of time that could span across decades. That’s according to Charlie Massimo, senior vice president and financial advisor at Wealth Enhancement Group. Expenses can add up fast:
For instance, if a couple needs $8,000 a month in the first year of retirement, by year 10, that grows to $10,600 per month with trendline inflation. By year 20, that’s $14,200 per month.
“Trendline inflation,” by the way, means guessing what future inflation will be based on historical trends. If we look back at the last 50 years, 1972-2022, the average is 4% annual inflation. Yes, that’s DOUBLE the Fed’s target rate!
Underestimating expenses is quite common, even before we consider the effects on inflation, according to Ashley Rittershaus, founder and financial planner at Curious Crow Financial Planning:
In general, people tend to underestimate their expenses, especially when it comes to items like home repairs, new cars, big trips, and medical or dental expenses.
So let’s take a moment to take a deeper look at those expenses which can drain your retirement savings fast, at least two of which are commonly overlooked.
First: Don’t underestimate inflation
Persistent price inflation ranging from worrisome to outrageous has defined the Bidenomics era. Inflation is known as the “tax that no one votes for” because it permanently robs you of your wealth, and it doesn’t require an act of Congress or a President’s signature.
Unfortunately, most people pay more attention to the number of dollars they have than what those dollars can buy. During retirement, purchasing power – the value rather than the quantity of your money – becomes even more important.
Right now, the official story from the Bureau of Labor and Statistics can be summarized as follows:
The Consumer Price Index for All Urban Consumers (CPI-U) was unchanged in October on a seasonally adjusted basis, after increasing 0.4 percent in September, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 3.2 percent before seasonal adjustment.
The index for shelter continued to rise in October… The food index increased 0.3 percent in October, after rising 0.2 percent in September…
Leaving the nuts and bolts aside, official inflation is 60% over the Federal Reserve’s target. Which means we’re still being robbed during the Bidenomics era, faster than any other time in the last decade.
If you’re nearing retirement, it’s unlikely that inflation will let up in time not to factor it into your plans. If it heats up again, the purchasing power of your retirement savings could evaporate like a spilled drink on a sunny day.
But you also have to think about something else while you’re planning how to spend your retirement dollars in the future…
Second: Don’t underestimate expenses (or how they grow)
There are a number of expenses to plan for during your golden years. Some of the most common ones are home maintenance, travel, and overall energy prices. Keep in mind that price inflation affects each of these expenses too.
If left to poor planning, they can all drain your retirement savings faster than a cheese grater leaks water. For example…
Here’s how inflation has increased the cost of home maintenance according to the New York Times:
Nationally, the average annual maintenance cost of single-family homes during the first quarter of 2023 was $6,409, up about 9 percent year over year. Townhouse costs rose about 4 percent and condo costs rose less than 2 percent.
According to the latest data from the U.S. Travel association, national travel prices are still heating up even though COVID panic has passed for the most part:
On a year-over-year basis, travel prices were up 4.4% in September, a significant increase from +2.2% in August and on par with 2022 levels in July.
While your electric bill “might” have been stable since 2015, almost every other type of energy price (including gasoline) hasn’t been that stable. You can see the energy price madness for the last decade reflected here. Average prices for regular unleaded gas ranged from $2-$5 per gallon since 2015 – and now sits somewhere in between, at $3.78 per gallon.
You can’t anticipate changes like this. Energy prices really are volatile! So, it’s smart to build a little extra into your budget for travel and utilities expenses.
If that weren’t bad enough, the biggest savings drain for both current and future retirees according to AARP are healthcare costs, which are still rising:
health care costs have seen – and will continue to see – faster inflation rates than any other spending category, says Craig Toberman, a certified financial planner in St. Louis. That’s why he projects that health care costs will climb about 5 percent annually over the next 30 years… He encourages clients to be mindful of their “lifestyle” retirement spending (like restaurant meals, travel and online shopping) in their 60s and 70s so that the money is still there to pay for increasing medical costs in their 80s and 90s.
Everything shown above reveals that inflation and some common expenses you will encounter during retirement could put into question any amount that you already have saved for retirement.
Finally: Don’t fall into this trap
It's a big mistake to think our hard-earned retirement dollars will have the same buying power in the future as they do today.
Since you don't know how much less buying power those dollars will have, it’s a good idea to prepare for the worst and hope for the best.
Diversifying your retirement savings with precious metals like gold and silver could help you if you need to consider a safer place to put your money.
That’s because gold and silver have been historically proven to help store purchasing power, while they’re also considered inflation-resistant investments.
Don’t wait until it’s too late, take back control of your financial future while there is still time. You can get the information you need to consider precious metals in our free kit.
Phillip Patrick is Birch Gold Group’s primary spokesman and educator. He was born in London and earned a politics and international relations degree at the prestigious University of Redding in Berkshire, England. Growing up in London, he saw the risks of government overreach and socialist policies first-hand. He spent years as a private wealth manager at Citigroup on Lombard Street (the Wall Street of London). He joined Birch Gold Group as a Precious Metals Specialist in 2012.
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