5 Retirement Mistakes to Avoid – Underestimating inflation

5 Retirement Mistakes to Avoid – Underestimating inflation

A successful retirement is an attainable goal. It takes diligence, discipline, and some creativity.

We, at One Degree Advisors, have helped hundreds of families prepare, transition, and live successfully.

We have seen families do retirement right, and unfortunately, we have seen people make serious mistakes too. While mistakes in life and finance are inevitable, we want to help you avoid the big ones.

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5 Retirement Mistakes to Avoid: Mistake #2 Underestimating Inflation

In 2000, a gallon of gas cost 1.75 Nowadays, it’s 4 dollars. If you’re not accounting for increasing costs in retirement, you may be setting yourself up for failure.

Full Transcript:

Alex Okugawa 0:00
In 2000, a gallon of gas cost $1.75. Today, it’s close to $4.00. If you’re not accounting for increasing costs in retirement, you may be setting yourself up for failure.

Alex Okugawa 0:23
Alright, Anthony. So we are in our series, 5 Retirement Mistakes to Avoid. And today we’re on Mistake number two, which is underestimating inflation in retirement.

Anthony Saffer 0:31
Right, those incremental increases in expenses can really lull the retiree to sleep if they’re not thinking about it.

Alex Okugawa 0:38
Absolutely, and so let’s think about it like this, the average rate of inflation from 1913 to 2019, was 3.1%. But let’s put that into real terms. Essentially, what this means is, every 23 years, your costs are going to double.

Anthony Saffer 0:52
So when you retire, you could be spending twice as much at the end of retirement.

Alex Okugawa 0:57
And, of course, the mistake a lot of people make is they say, Well, my expenses are going to change, some things are going to drop off. And although the character of your expenses might change, it’s a very dangerous way to go about retirement planning, to say, oh, all these expenses are going to drop off, therefore, things are going to be a lot cheaper in retirement.

Anthony Saffer 1:14
They’re often replaced with something else. I mean, and let’s look at an example here of how you need to start taking inventory of it. Let’s say there’s two people, they have a pension, they’re both getting ready to retire, it’s going to pay them $5,000 a month, for example, one of those retirees has a cost of living adjustment, it’s aligned to keep up with inflation over time, versus another one that’s stable throughout their retirement. That’s a far different benefit over the long term.

Alex Okugawa 1:40
So things that people need to be paying attention for, that are paying attention to especially retirees is they need to take inventory of their income sources. So of my income sources, what are those that will keep pace with inflation? And maybe I will have some that won’t keep pace, pace with inflation and pair that planning with the expenses, having an accurate view of what you’re spending and being able to project that into the future with cost of living adjustments. And so the question you want to ask yourself, is “Are my inflated expenses going to be met by my income sources?” Right, are my income sources going to be meeting my expenses now? And in the future?

Anthony Saffer 2:17
Yeah. And it could be a big mistake if you don’t do that.

Alex Okugawa 2:20
So we wrote a complimentary guide, 5 Retirement Mistakes to Avoid because the truth is, we believe people can have a successful retirement.

Anthony Saffer 2:29
These mistakes are easily overcome with proper recognition, planning, and then being able to provide the solutions to overcome them.

Alex Okugawa 2:50

Absolutely. So we will link to our website below where you can download our complimentary guide 5 Retirement Mistakes to Avoid today.

This does not constitute an investment recommendation. Investing involves risk. Past performance is no guarantee of future results. Consult your financial advisor for what is appropriate for you. Disclosures: https://onedegreeadvisors.com/solutions/#disclosures