Rising Costs vs. Your 'Magic' Retirement Number

You have done all the right things to prepare for your golden years. But have you taken into consideration how the rising cost of living might affect your nest egg? With many Americans now living into their 90s, will your retirement plan cover the rising costs due to inflation?

According to a new study by Allianz Life Insurance Company of North America, nearly half of Americans (47%) report being either “very concerned” (36%) or “terrified” (11%) that they won’t be able to afford the lifestyle they want in retirement due to rising costs. Katie Libbe, vice president of Consumer Insights for Allianz Life Insurance Company of North America shared with FOXBusiness.com how inflation can affect your retirement and what you can do to ensure your nest egg lasts you a lifetime.

Boomer: What are the psychological and fiscal impacts of inflation on boomers’ financial strategies?

Libbe: The psychological impact of inflation on boomers’ financial strategies is significant as (43%) of respondents ages 55+ in our recent survey report being either “very concerned” or “terrified” that the rising cost of living will affect their retirement plans. Additionally, a similar percentage (41%) of boomers note they are either “very worried” or “panicked” that they won’t be able to afford the lifestyle they want in retirement due to rising costs.

From a fiscal standpoint, boomers are right to be concerned because inflation can drastically limit purchasing power, especially in retirement when people are no longer getting annual pay raises. For some boomers, adjusting to higher costs in the future means living more modestly – but for many others, there is real concern about being able to pay for the essentials, including housing, food and medical care. Nearly a quarter (22%) of boomers in our survey said they have this concern, which means more planning needs to happen now to prepare for rising costs in retirement.

Boomer: Once retired, what can Baby Boomers do to prepare for the rising cost of living?

Libbe: Planning ahead is crucial to help ensure your income lasts for 30 years or more, but it should also address how that income can cover rising costs driven by inflation. A good place to start is to analyze your essential expenses – such as food, clothing, and housing – that you are certain you’ll need to address in retirement. You should build inflation into your estimates and then start exploring strategies and products that offer opportunities for retirement income payments to rise.

Many boomers already understand the importance of this concept, evidenced by the fact that nearly half of those surveyed said they feel it is very or extremely important that guaranteed income products offer the possibility for income to increase over time. Some annuities – which offer guaranteed income that people can use to address paying for essentials – also provide the opportunity for payment increases, which can provide added security as boomers consider their financial future.

Boomer: How should Baby Boomers adjust their lifestyle to invest smartly and manage their finances during retirement?

Libbe: If boomers don’t already have a budget, they should establish one now and work on building additional savings they can use to address rising costs. The next step is to review their portfolio and make sure they have the right balance between equities and more conservative investments in order to properly address risk and market volatility. Finally, boomers should make sure they have a plan for how they take income in retirement. Much of financial planning during working years is focused on building up assets for retirement, but once boomers start to make that transition to retirement, they’ll need to consider options that will help ensure they can cover the essentials. Once those needs are met, boomers can have more confidence in planning for the enjoyable parts of retirement, like travel and spending time with friends and family.

Boomer: How do I determine that “magic” number I will need for retirement?

Libbe: The important thing to remember is there is no “magic number” that fits everyone. The amount you need to retire comfortably depends on your individual goals, which are determined by a number of factors including when you want to retire, where you want to retire and what you plan to do with your free time once you stop working. As previously noted, a good first step is to make a plan for covering those essential costs and ensuring your money lasts as long as you do. This can be a complex process, so it’s wise to work with a financial professional who can help you understand the many factors that go into building a financial plan, such as your risk tolerance, Social Security and tax efficient strategies, and retirement income planning. Even if boomers are not currently working with anyone, there is still time to connect with a knowledgeable professional and get sound advice on planning for their financial future.