How are you dealing with or plan to deal with inflation in retirement? By R Quinn
Someone on HD asked if my inflation adjusted retirement income today still equaled my base salary when I retired.
The answer is a resounding no. For every dollar of base pay in 2009 I would need $1.50 today. Since my pension does not have a COLA, any automatic adjustment is up to Social Security, but that is less than a quarter of our income.
So, now I am 50% behind - no panic yet, but I am glad I didn’t start out say, with 80% income replacement. My extreme fiscally conservative attitude on this subject provided a cushion relative to our spending. Never in thinking about retirement did I consider we might spend less - and we don’t.
Our mortgages were paid off several years before retiring and while we don’t save as much, we still save mostly in the form of eleven 529 plans, and reinvesting investment earnings
Minor items that could mean lower spending in retirement have been offset by increased retirement related spending like more grandchildren and healthcare premiums which went from $157 a month for two of us before I retired to $1654 a month today. In the place of general maintenance for our house inside and out, we have a $950 monthly HOA. Frankly I think the HOA is higher on an average annual basis.
As they say, the greatest risk in retirement is longevity.
Everyone has their own way of dealing with inflation. The 4% withdrawal strategy adjusts for inflation. I will deal with inflation when I have to by first using dividends and monthly interest payments and from cash building up in investment accounts, or in the extreme using assets I hope will go to our family.
I asked Gemini how retirees deal with inflation. Many ideas, like part-time work, cutting spending, taking a HELOC, renting a room in your home and delaying SS were not appealing. Various forms of investment income were attractive, TIPS, I Bonds and dividend stocks were mentioned as was rental income.
NJ state workers naively relied on a pension with a COLA, but because the pension fund was in terrible shape, the COLA was “temporarily” suspended. That was in 2011 and still no COLA and the trust is still underfunded. A problem created by politicians and public unions.
The point is that we all need some way to cope with inflation as we live on at least a partially fixed income. I elected to deal with it in advance and 15 years later so far so good, but for many people that may not be feasible or desirable especially if it delays retirement, so they need another strategy.
How are you dealing with or plan to deal with inflation in retirement?
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