According to the Society of Actuaries (SOA), the number one fear for retirees and soon-to-be retirees is inflation. Not only are they to figure out a way to keep their asset value up with inflation, but do it while paying for the ever-rising cost of health care.

The SOA found that more women than men are worried about the impact of inflation on their retirement (62% versus 51%). Women are also more concerned about affording long-term care (57% versus 47%), paying medical expenses (56% versus 45%), exhausting savings (52% versus 37%), and remaining in their homes (44% versus 29%).

The anxiety over inflation is well-warranted. For example, you have $60,000 today and inflation climbs 3% a year. The equation to calculate how much money you’ll need to buy the same amount in the future with the $60,000 you have now is: ($60,000 * (1+inflation rate)^number of years). Plugging in the hypothetical rate of inflation (3%), in one year, you will need $61,800 to maintain the same buying power as today. In two years, you will need $63,654. In twenty years, you will need $108,367.

If that’s a pretty dismal result, look on the bright side. Inflation is at a record-high since 2005, running at approximately 5%. However, that number is expected to drop to 4% by next year. 4% still isn’t good, but it’s a step closer to the price stability that we all desperately need.

To get a rough idea of how sustainable your savings are, estimate your future inflation-adjusted spending power and your future expenditures. Income calculators and life expectancy calculators are available online.

Some pre-retirees and retirees are also turning to annuities to insure themselves against inflation. An annuity guarantees a stream-of-income after a predetermined payout date. Certain sites, such as longevityquotes.com, offer free quotes for how much money you should invest now to obtain a payout you would like to receive in the future.

Author: Mary Wu, DeHayes Consulting Group