The Retirement Planning Mistake That Makes Inflation Much More Expensive
We do see people follow the pattern of go-go, slow-go, no-go. And so, in the go-go phase, often, spending is high, and we’ve planned for that. We built in extra spending, and we’re taking a set of baseline expenses and assuming it’s going to go up each year, typically 3% for living expenses, 5% for healthcare-related expenses. All of that is baked into their cash flow planning, the amount of money we say that they’re going to need each year. But where I often see people not needing the inflation increases is in the slow-go phase.
They will travel and do a lot of extra things in the first five, sometimes 10 years of retirement, but usually around the mid-70s, people do slow down, and we’ll say, “All of your plan metrics look solid. We have an inflation raise built in. We can increase your direct deposit from X to X.” And they’ll say, “You know what? I’m not even spending what you’re sending already.” And so that is not uncommon for us to hear in those later phases of retirement. I would say in the earlier phases, especially the past few years, people are like, “Yes, I’ll take that.” And so, we increase their direct deposits, and it’s very reassuring for them to know that that’s already built in and part of the plan.
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