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5 ways to beat inflation

By Jennie L. Phipps · Bankrate.com
Thursday, February 27, 2014
Posted: 2 pm ET

If you don't want to run out of money, you have to factor inflation into your retirement planning.

While Social Security is indexed for inflation, many old-fashioned, defined benefit pensions aren't. Plus, if you're putting your retirement savings into U.S. Treasuries or other investments that are considered safe, you won't make enough on your money to compensate for the eroding effect of inflation.

David Rosell, founder and president of Rosell Wealth Management and author of "Failure is Not an Option," points out to his clients that over the past 20 years, inflation has averaged 3.5 percent, which means that prices in that time frame have doubled.

In practical terms, that means if you're withdrawing $100,000 from your investment account when you retire this year, by 2034, you'll need to withdraw $200,000 to maintain the same standard of living. In 40 years, you'll need $400,000. That's a startling number, but some of us retiring today will live past 100 and face it.

Rosell says a lot of people reject what he tells them about inflation, but he recommends you look at it this way. "My dad spent $38,000 on their first home and more than that on the last car he bought. That's what inflation does."

There isn't much you can do about rising prices, but there are some ways to cope with them:

Include an inflation calculation in your retirement planning. When you make your retirement budget, include at least a 3 percent inflation calculation in your projections. The number may look staggering, but forewarned is forearmed.

Remain invested in equities. While putting all your money in bonds, bank savings and money market funds may seem safer, it's not -- primarily because of the inflation factor.

Adjust your spending. In years when the return on your money is low -- or you lose money -- trim what you spend to preserve your principal.

Maximize your Social Security. Social Security provides guaranteed inflation-adjusted income. Use a smart calculator to figure out how to claim in the most advantageous way -- even if the strategy requires you to spend down your savings first.

Get a part-time job. Earning money at current pay rates is an excellent hedge against inflation.

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3 Comments
John
February 28, 2014 at 10:21 am

Here's the simple math. If you get $1000 a month at age 62, you will collect $48000 by the age of 66. If you wait until 66, you get $1250 a month. Now, if you take the extra $250 a month and divide it into the $48000 you could have collected had you started at age 62, it works out to be 16 years before you break even. It's not worth it. You are better off collecting early and taking small amounts from your savings and let the savings continue to grow. Should you die early, your remaining savings will go to your heirs. Social Security will give your heirs nothing.

Mike
February 28, 2014 at 7:57 am

Why would someone senp "their" saving to get more from the government.
I know what I have & what I can leave to my kids-the feds can decide they want to unilaterally reduce benefits-do you really trust the government?
Moreover, a dollar I get from social security at age 62 is more valuable than $1.50 at age 83 when I am less active or possibly will be signing it over to a nursing home.
Mom taught me one bird is worth 2 in the bush & it is as true now as it was 65 years ago!

Mike
February 28, 2014 at 7:55 am

Why would some send "their" saving to get more from the government.
I know what I have & what I can leave to my kids-the feds can decide they want to unilaterally reduce benefits-do you really trust the government?
Moreover, a dollar I get from social security at age 62 is more valuable than $1.50 at age 83 when I am less active or possibly will be signing it over to a nursing home.
Mom taught me one bird is worth 2 in the bush & it is as true now as it was 65 years ago!

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