6% Inflation May Be Here to Stay - Prepare & Protect

1. Beef

2. Amazon Prime

3. Gasoline

4. Haircut

5. Electricity

Let me start the list of pain in the wallet.

You go next. Who is asking you for more money for the same or even less?

The government tells us things will get better. Uh huh.

What if prices keep rising for another two years or twenty years? Can you make it in retirement if every year the price of toothpaste goes up a dollar? You need a retirement income plan with inflation in mind.

Too many retirees have no plan to increase their incomes every year.

Everyone's situation is different, but let's look at an example to illustrate how inflation can be addressed in retirement. Our example uses numbers selected for simplicity and clarity.

Our example retiree will be 72 years old this year and quit working just three years ago. For the past three years they have worked part time earning $1,000 a month but do not want to work any longer. Our retiree has about $330,000 in their IRA account.

At age 72 they are required to start taking annual minimum withdrawals from the IRA.

Each year the IRS determines what the minimum amount will be based upon age and the amount in the IRA at year end. A larger and larger percentage must be withdrawn each year.

Wouldn't you know that at age 72, with a $328,800 IRA balance, the minimum amount to be withdrawn is $1,000 a month. Exactly the amount needed to replace the part-time work income.

$1,000 a month in year one. But our retiree wants that income to increase each year by 6%. They want a fighting chance to keep pace with inflation and maintain their lifestyle.

The income would increase to $1.060 a month in year two and around $1,125 a month in year three. The income continues to grow over time: around $1,700 a month in year ten and $2,250 in year fifteen.

What started at $12,000 in annual income has increased to $27,000 in fifteen years.

How much interest would our retiree have to earn each year to meet their goal for six percent income increase every year? The answer is around 7.5%.

With that amount of average annual interest, you can see your annual income increase by 6% per year and grow your IRA balance by 25% over time.

The attached PDF shows the actual year-by-year interest results needed and the IRS Uniform Lifetime Table converted to a percentage (much easier to understand).