BY PAUL ANDERSON Contributing columnist
Inflation impacts retirement income in different ways. Depending on what stage of your life you are in and the rate of inflation, you can consider it a good thing or something to be dreaded.
We live our lives with careful consideration to our health so that we can enjoy a long life. It's also important to make sure that we can meet all our financial needs and be able to enjoy those years after retirement without worrying about money.
Americans understand the need to put money aside to maintain a quality lifestyle after they retire. Knowing how much it will take to meet expenses of daily living during the later stages of life is often miscalculated. There is no crystal ball to show whether the economy will suck the yolk from the nest egg or if it will act as an incubator so that it continues to develop.
One mistake that people often make when saving for retirement is neglecting to factor in how much the cost of living will have gone up because of inflation. It is difficult to project how much income you'll need every year to meet expenses. They call the retirement years the golden years, but they'll lose their shine if you can't live comfortably off of a fixed income.
For people who always find a bright side in economic news and are still making regular contributions to a retirement account, even inflation can bring a smile because it helps the savings grow faster. Rising interest rates mean that accruing interest will add to the principal that will serve as retirement income. But there is no benefit once contributions are stopped and interest earned is being withdrawn.
While inflation may increase interest rates on the principal of the savings account and give you access to a little extra money, don't expect it to cover the increases in the cost of living. It's not just about protecting the principal value of your money but protecting your buying power.
It's true that some pension funds and the Social Security program adjust benefits for inflation. It may sound positive, but the fact is the raise doesn't match the rate of inflation, although it can make a big difference for those on fixed incomes.
Make sure the fixed income that you will rely on will allow you to fill your retirement years living the life you dreamed of during the decades that you were a slave to the responsibilities of work and family. Get guidance for retirement planning and ask questions so that you can more accurately prepare for what financial needs the future will hold. If you're armed with reliable information and a solid long-term retirement plan that can stand up to inflation and protect your buying power, your retirement goals can be realized.
-- Paul Anderson is an investment advisor and partner at Moneywise Wealth Management. He is also a host of the Moneywise Guys radio program on KERN 1180 weekdays 10 a.m. to noon. His email is Paul@moneywiseguys.com and website is www.MoneywiseGuys.com. Advisory Services offered through: SCF Investment Advisors, Inc. Corporate Office: 155 E. Shaw Ave. #102 Fresno, CA. 93710 800-955-2517. These are Anderson's opinions, not necessarily those of The Californian or SCF.