A major component in retirement planning is determining how much capital you will need to generate an income you can’t outlive. How much you need depends on how much you will spend. How much you actually spend will, in large part, be your ability to maintain your purchasing power. If the rate of inflation exceeds, or, at a minimum, drastically erodes your purchasing power, you could very likely spend down your capital before your time is up. It is critically important to factor inflation into your spending needs, but your inflation rate may be different than the posted inflation rate, or Consumer Price Index which the government uses as a national measure.
Inflation only impacts you when you make a purchase. How you manage your lifestyle can enable you to control its actual impact. For instance, gas prices have more than doubled for most people in the last few years. For someone who commutes 20 miles to work in an 8-cylander car, fuel inflation reduces your purchasing power. But, if you live a few miles from your work, or find less expensive modes of transportation, you won’t be affected. If you’re a technology addict and you must have the latest version of the iPad as soon as it is released, your purchasing power has to absorb the rising cost of iPads and the technology to support them.
Ways to lower your personal inflation rate and increase your purchasing power include:
The information provided is not intended to be legal, tax, or financial advice or recommendations for any specific individual, business, or circumstance. TowneBank cannot guarantee that it is accurate, up to date, or appropriate for your situation. Financial calculators are provided for illustrative purposes only. You are encouraged to consult with a qualified attorney or financial advisor to understand how the law applies to your particular circumstances or for financial information specific to your personal or business situation.