Jim Lorenzen, CFP®, AIF®
While historic inflation rates average a bit over 4% and many people doing their own calculations may be using figures in the 2-3.5% range, the actual numbers may – just may – be far less – maybe as low as 1%!
Why? Because inflation doesn’t apply to ALL of your spending. Many people are paying on a fixed mortgage – those payments won’t increase. Granted, other outlays (food, energy, and products) may increase; but, the total may be less than you think.
If 70% of your spending increases at an average rate of 3% annually, but 25% of your expenditures remain constant, you’re actual realized increase is more like 2.25%.
But, what if you’re retired an your spending decreases? That’s when your overall cost increases may be closer to 1%… maybe.
It’s important that your planning reflect these realities, as well as others. There are other considerations, to be sure. A bad (or no) plan can be the most expensive of all.
Jim
