Inflation and Your Annual Savings

Many experts agree that Social Security may not exist in the same form for future retirees. It is now more important than ever before to plan for retirement. One of the most important steps is to determine how much income you will need once you have retired.

One mistake that many people make in retirement planning is that they do not adjust this amount for the inflation rate. Suppose Justin estimates that at retirement, he will need $40,000 per year to live and he will retire in 25 years. Assuming a 3% inflation rate Justin will actually need $83,752 in his first year of retirement to have the same purchasing power of $40,000 in today's dollars. Furthermore, assuming that the inflation rate continues to increase, the annual income of $83,752 will also need to increase yearly just to keep pace with the rising costs caused by the inflation.

In this example Justin would need to save $550 per month for the next 25 years and receive an average annual rate of return of 12%. The numbers can change dramatically when the average annual return is changed or the years until retirement is changed.

Annual Savings Chart - Time is Money (Inflation is assumed to be 3%.)

*Past performance is no guarantee of future results

Atlantic Financial Can Help You with Retirement Planning

As you can see by the last example in the chart above, starting annual savings early has its rewards. If it is too late for you to start your annual savings early it is still not too late to save something. Atlantic Financial can help you set up a retirement plan no matter what your age, goals or financial situation is.

Contact Atlantic Financial for a financial review or submit an on-line request for a financial plan.  We can tell you: how much you need to save, how much you will need at retirement and where you should invest today.

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