<p>For those nearing retirement what steps are you taking to mitigate (as much as possible) the impact of inflation.</p>
<p>Worrying ahead are we? Again?</p>
<p>Sorry, DW is a world class worrier. “What will happen if there’s inflation? Deflation? Housing prices don’t recover? One of us gets really sick? One of the kids needs financial support?”</p>
<p>I don’t anticipate Jimmy Carter levels of inflation … if for no other reason that relatively few individuals hold most of the money. Sure they’ll overbuy. But how many Porterhouse steaks can one rich person eat?</p>
<p>I am a planner. It has served me well. I also try to remove all emotion from financial decisions. That also has its benefits. Finally, I like to get information from smart people. You can get that here.</p>
<p>Well, tom1944, how are you dealing with potential inflation?</p>
<p>Well I am lucky enough to have a pension. Until recent legislation it had a COLA- so if that recent change is struck down in court my plan will change. Assuming I lose the COLA component I will most likely work 1 or 2 additional years. That increases my pension and social security anywhere from 10-20%. It also shortens my retirement years. I hopefully can find a very small part time job that I like both to keep busy and as a small supplement to my retirement income. That will allow me to keep from touching my retirement funds until the mandatory withdrawal age. Next I will be going in to retirement with a mortgage which costs about 10% of my gross income and will account for the same hit on my retirement income. So just by working 2 extra years I cover 20% inflation and towards the end of retirement when the mortgage is finally paid I cover an additional 10%. I also have my retirement funds for things like health care inflation. I think I cover about a 20-30% inflation hit over the course of my retirement years this way.</p>
<p>I should clarify the reason I am asking is because- I do not want to work 1 or 2 extra years, I do not want to work a part time job and I do not want to have to live as frugally in retirement as I live now. So I just want to see if there are things I can do that would help me get there and not have to worry about inflation.</p>
<p>“I just want to see if there are things I can do that would help me get there and not have to worry about inflation.”</p>
<p>It sounds like you’re in the territory between “Got enough money that it doesn’t matter what happens” and “I’ve thought this out WAY more than most folks.” Welcome to my world. What I concluded was that the best course was to keep my options open. I’ve “encouraged” my kids into fields that pay well enough that they can support themselves, DW and I have refined our lifestyle toward rewarding activities that aren’t terribly expensive, and we’ve diversified our finances … parts of which become more valuable with inflation, and parts which become more valuable with deflation. Serious threats to this plan … e.g., our pension company and the Pension Pension Guarantee Corporation going bankrupt simultaneously … are simply too costly to insure against. </p>
<p>The real flaw in planning for inflation is the uncertainty of (1) how much inflation; and (2) in which products inflation will be most severe. For example, it’s July 2005 and you know that going forward you need to pay all debts with gold. (I.e., get you pension check, convert it to gold, and pay your bills.) You look at the last twenty years of gold prices and conclude what? A 10%/year gold inflation hedge would surely cover it. Except that gold actually “inflates” 35%/year. Oops. On the other hand, if you needed to pay all bills in Euros, 10%/year really would have been way over the top … since the euro’s value has been declining.</p>
<p>All this is theory and analysis of course. If you’re convinced domestic inflation is the biggest threat to your retirement and you’re looking for practical advice, think about inflation-favored investments … like long-term wagers in Swiss currency and Canadian/Australian natural resource-based economies. JMHO of course.</p>
<p>Tom – Have you considered that you might get a reverse mortgage? That’s one of our hip-pocket solutions if retirement income ends up falling seriously short of what we need for some reason. We don’t have pensions, and we’re pretty much on track with retirement savings – but there’s always the chance that there is some employment shock, and getting a well-paid job at 62 or older could be very, very difficult.</p>
<p>My calculation is that to maintain our standard of living in our current state of residence we need retirement income of 95% of current gross income, in large part because of projected retiree healthcare expenses.</p>
<p>Downsizing our home would likely yield a big drop in our cost of living because it is quite old and has high taxes, very high utility bills, and moderately high maintenance costs. We like it, and it works for now, but if moving to a smaller place worked better for us, we’d do that without a lot of angst.</p>
<p>The big thing we’re trying to do is to head into retirement with no debt.</p>
<p>If there is significant inflation, I would expect housing prices to increase, which should benefit us. We’ve also tuned our investments to include more natural resources equities, largely US, Canadian, and some Australian. We decreased Asian investment exposure a few years ago, and don’t have a lot in Europe either – but Switzerland is looking good. We’d planned to start buying a bond ladder at about this time, but given the yield curve we’re not locking into bonds at any time soon. We have shifted some of what we had planned on for bonds into dividend-yielding stocks, and have kept more in cash than we normally would.</p>
<p>Tom1944…I don’t want to work either.</p>
<p>I have a close friend who has similar circumstances.</p>
<p>I will tell you what I told him.</p>
<p>Work the extra two years. </p>
<p>Who the he’ll knows what is going to happen in this economy?</p>
<p>Peace of mind is worth a lot…</p>
<p>Biggest thing we did before my retirement…paid off debts. Mortgage is one year away from being “retired”. Plan to live in a “cash economy” from now on. To be honest, retirement is wonderful…so what if I have a little less money to spend. I have a LOT less headaches.</p>
<p>Wow. I’ve been self employed for years as has DH. Translation: no benefits when health insurance keeps going up and no pension or retirement. I have several friends in their seventies who are still working because they can’t afford to retire. We are working hard to pay off our house in the next five years. I’ll be 55 at that time and DH will be 59. Of course, we stayed in the same house for twenty five years and never borrowed against the equity to support a lifestyle we couldn’t afford.<br>
Wish I could say the same about everyone else. Our next door neighbor is in foreclosure. Has been in the house longer than we have been in ours. Probably paid around 200K. Refied in 2007, apparently took every penny out and now owes 831K. House is not worth that anymore. Lots of people around here walking away because they say if you owe more than 18 percent of what its worth you should.
****es me off because it hurts the rest of us in the long run.
Anyway, rant on that over. We are working hard to pay off our only debt-mortgage on primary house and rental property. Facing the fact that we will have to downsize in retirement and that we will have to scale back our lives a bit. We have had a decent run and are willing to do so. Still wish I had a pension.</p>
<p>Yeah, Thumper!!! We are planning to do this, too. I threw a little loop into things by quitting my job at a very regimented and stressful school last month, but I believe we will be successful at the basic plan. I have applied for several jobs that pay significantly less, but still belong to defined benefit retirement plans. I will be able to draw retirement from my benefit plan at age 57, since all belong to the same proportionate share arrangement. (Of course, the amount will not be large since I only had 18 years in the first system.) And I plan on continuing to work until my mid-60’s in a less stressful job, and will be able to pull a retirement benefit from that job, as well as from (knock on wood), social security. Both jobs include the possibility of buying retiree pooled health insurance.<br>
So, having steady retirement income, no debt or housing payments, downsizing to one vehicle, cooking more of our own food, low-cost hobbies, energy efficient “right-sized” home… and hopefully, good health, we will be okay! :)</p>
<p>Well we’ve done the obvious, putting money in TIPS, TIP funds and I-bonds for the past 10 years. I-bonds are now limited to $5000 per person/year though. The I-bonds were great when the fixed rate was above 2%, not so much now. The rate is a composite of a fixed rate and the inflation rate, calculated biannually. Unfortunately it never occurred to me that the Feds would use a negative inflation rate to subtract from the “fixed rate”. So we ended up with zero returns for 6 months not long ago. However for the most part, these investments have performed as advertised.</p>
<p>I like my work and social outlets that it provides but could see myself cut down to part-time. We have a few people at the office that are in their late 60s and early 70s that choose to work (replacing them would be difficult to do).</p>
<p>One thing in preparing for older age is getting in shape which I’ve done; but I’m working on getting in better shape so that there should be better quality of life in later years. That can be a kind of inflation hedge.</p>
<p>Other than that, gold, silver, platinum, foreign currencies, oil, natural gas, coal, energy companies and a few tech companies that I like. A little foreign diversification can provide a hedge against a weaker dollar.</p>
<p>We’ve lived frugally for a long time - I don’t expect that to change. We can do treats when we want to. Mortgage was paid off over a decade ago, car is ancient but is still a lot nicer than some of the newer cars that I’ve tried out and college expenses aren’t a problem.</p>
<p>Thanks everyone. Like I said some very good information.
dstark- I think working the extra two years is the safest bet.
ebeeee- the single reason I stayed in my job was the pension. I had at least 4 offers over the course of my career to leave and would have made more money. I made the determination that overall it was not worth it. I also paid for 50% of the total cost of my pension my government employer picks up the other half. I read on a think tank’s web site that that is the norm for private pensions also. (50/50 split) The group that posted that is called Third Way.</p>
<p>We have no mortgage. All of our children will be done with school in the next two years. All of the money that has been going toward college expenses will go in to savings. I work a full time seasonal job and part time the rest of the year…I will do that for at least another few years. I will never let H retire because he will go crazy if he is home too much–his hobby is working, unfortunately. He is 57 and will work another 10 years…or so he plans. After that he would like to consult or maybe teach on a part time basis.</p>
<p>Our major anticipated expenses will be travel to visit our kids wherever they live and spoiling our future grandchildren.</p>
<p>Start working out daily. Protecting your health is one of the most important things that you can do now for your future, older self. Since I started rising at 5:30 AM to hit the health club I am in much better shape and I spend less money now. I am too tired to shop for recreation, I’m too tired too go eat in restaurants for recreation. I go to bed earlier but I feel more fulfilled.</p>
<p>Tom has already indicated that he works out in the diet/exercise thread I believe.</p>
<p>We are looking at retirement also. We have 68 paychecks until mandatory retirement. I am buying a new car soon, something like a Camry that is easy on gas and will last beyond a hundred thousand miles. We bought long term care insurance this year. Our home is paid for, our summer home also. If worse came to worse we could sell our main house and live in our small summer house. My husband was in the military reserves and so we have health ins. for life and a small pension in addition to our IRAs and 401ks. Our d is expensive but about to graduate. My husband loves his work and is busy networking so that he can find part time work in a little over two years. Retirement is making some of our friends unhappy and not just for financial reasons.</p>
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<p>Interesting that you say that…I just read an article that talked about how a lot of people are finding retirement to be stressful and not what they though it would be. Although, the article implies it was mostly for financial reasons. What do you think is causing their unhappiness?</p>