Managing Inflation and Longevity Risk
After 15 years of low inflation, the last 2-3 years have seen a 3-4% inflation rate. Eventhough inflation is expected to moderate this year, and return to its long-term rate of 3%, nonetheless it is important to understand the key risks. And what to do about it?
Key Risks and Their Importance
Why it matters: Over time, inflation erodes the purchasing power of money. For retirees on a fixed income, this means they may not be able to afford the same standard of living in the future.
Example: At a 3% annual inflation rate, prices double approximately every 24 years. A retiree who plans for $50,000 annually may find that inadequate two decades into retirement.Longevity Risk
Why it matters: Increased life expectancy means retirees might outlive their savings. Planning for only 20 years post-retirement might be insufficient if they live 30 or 40 years.