The first concern of any new retiree must be the protection of his or her buying power! If your retirement income is a fixed amount, then you need to plan for the loss of buying power caused by inflation. Some forunate souls have pensions that have a cost of living clause built right into them. If you're not one of these fortunates who have inflation protection, then early on you need to come up with a way to handle inflation!
Inflation, even a low inflation rate of 2% per year can have can have a drastic effect on your spending five years from now. For example, if your net income after taxes, is $25000 a year, inflation will reduce your buying power by $500 a year. Five years from now this will be costing you about $2500 a year in lost buying power - more if you take into account the compounding effect! You will still have your $25000 per year, it just won't buy you as much as it would now!
Tomorrow, we'll look at some ways of handling inflation for the retiree!
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