How does inflation inflation the money I need to retire (calculations)? And how much pension would I be enough for me?

In the US, The Wall Street Journal spoke with several octogenas and nonagenari. Some regret that they were not more generous with themselves, others did not save enough.

Sue Jones believed that he had more than enough money to live. But he did not expect to live up to 90 years. She had $ 50,000 in a pension account, in addition to the pension of about $ 2,900 per month.

But her income no longer covered the invoices that were growing. Sue has entered and left the hospital several times this year, gathering medical and copial invoices for prescription -based drugs. Her children help her in expenses because otherwise she would not cope. “I was planning to die at a more normal age, but that's not what God has reserved!” She told Wall Street Journal.

The traditional financial planning model assumes that you would need 80% of the salary to support your lifestyle during retirement.

The assumption is that your expenses will decrease during retirement (you will not buy so many clothes, you will not spend on transport to and from work to home, the outings will be raised …), but the expenses related to medical assistance could increase significantly, writes Todd R. Tresidder in the book “How Money I I Need to Retire”.

For example, an average residence in an elderly home can cost over 72,000 lei per year (at an average cost of 6,000 lei per month, as much as the current average tariff) and could increase to over 150,000 lei per year by 2050, assuming an annual inflation of 3%. In short, it is very possible to spend significantly more than your income after retirement.

Ty Bernicke, in an article in the Journal of Financial Planning, has shown that retirees spend less, no more, during retirement.

According to statistics, a 75-year-old person spends about 50% less than an average person of 45-54 years. Tacchino and Saltzman (1999) have reached similar conclusions, in the Journal of Financial Planning, volume 12, number 2, under the title “Do Accumulation Models Whats Needed to Retire?” (pp. 62–73). In this study, the authors showed that households aged 75 and over have income similar to those between 65 and 74, but the actual expenses decrease in almost all categories, including nutrition, transport, clothes or entertainment. The average decrease in real expenses up to 75 years is about 20%, a reduction that appears naturally and voluntarily, not due to lack of resources.

However, even if you spent 25% less every 10 years as you grow old, inflation should easily eliminate all these advantages, because 3% per year will increase expenses in 10 years much higher than 25% reduction.

How does inflation inflation the amount of money I need for the pension?

Traditional financial planning usually involves a 3%inflation rate. At an inflation of 3%, the amount of money you have to spend to maintain your current standard of living doubles every 24 years. In other words, if you spend 72,000 lei per year now, then you should expect to spend 150,000 lei annually over 24-25 years for the same lifestyle.

For example, an inflation rate of 6%, the income requirement doubles about every 12 years, and a 65 -year -old person who spends 72,000 lei today will spend 231,000 lei per year at the age of 85.

In fact, inflation is probably the biggest threat to the financial security facing the pensioners, says Tresidder.

How does life expectancy influence the amount of money I need to retire?

No one can know how much we will live after retirement. You could die tomorrow or live up to 120 years old.

Traditional financial planning tries to answer this question by consulting tables on life expectancy. In Romania, the 65 -year -old life expectancy is 17.3 years. Men can expect to collect the pension for 15 years, and women 19.1 years.

This is average, if your medical history is more precarious and with serious history, you may live less. As, as well you might catch a hundred years.

In the past few decades, hope of life At the age of 65 it has grown at European level (with few exceptions). In Romania it has dropped from almost 6 years in men, to only 4 years. In women, the decrease was smoother: from 5.2 years to 4 years, according to statistical research.

Compared to men, women live longer, but in a more precarious state (having a larger number of years moderately or severely limited).