Planning Well for Retirement Means Taking into Account Inflation.
Yes, as daunting as retirement planning can be, making plans for cost of living increases only adds to the the stress when we are simply trying to make ends meet these days. Yet there are smart ways to plan for retirement without struggling paycheck to paycheck. Many of us think that planning for retirement is a black or white issue, when in fact it doesn't have to be. Social Security income already accounts for inflation. The latest studies are showing that building a retirement income from Social Security is an option, as well as using AgeBander software or generating a retirement income that may fall a bit short of projected inflation.
How to Plan for Retirement
1. The Social Security Option
It is possible to build a retirement income using part of any retirement savings that you have as well as your Social Security. Both should cover basic expenses to simply live and increase to counteract inflation and lasts a lifetime. The remainder of any retirement savings can then be used to cover discretionary expenses, or expenses that you choose to spend money on.
2. AgeBander Software
Created by Somnath Basu from the California Finance Institute, the software specifically breaks down spending necessities by category. For example, there may be various categories as follows: medical expenses, recreation, utilities and food, etc. What's nice about this approach is that the software can project how these expenses may decrease or increase at various rates over the years. How much retirement income you need to account for discretionary and basic expenses is then projected.
3. The Fixed and Inflation-Adjusted Annuities
This is a more middle-of-the road choice, where you can take your retirement savings and use half to buy a fixed annuity, which does not account for inflation, and then an annuity that accounts for inflation adjustments over the years. This allows you to have a 25 percent more retirement income than if you were just to purchase an annuity that covers inflation over time.
What About a 401K?
If you have a 401k option at work, go for it! Contribute as much as you can and see how much you would need to contribute to get your employer's full contribution. Contributing to a 401k makes your taxes lower and simplifies your automatic deductions. And the added interest and tax breaks allows the amount to grow more. If you do switch jobs do not cash in your 401k, rather, roll it over into an IRA.
As women, planning for retirement can be overwhelming and confusing. But there is help out there. Network with someone you trust or consult with a retirement planning expert. We need to plan for the future ladies!