The biggest misconception I see when talking to retirees or soon to be retirees is that they worry about losing their "money" in retirement. And when they say "money" they mean a principal dollar amount. I worry about that too but I worry more about them losing their purchasing power to inflation.
Money is a form of currency that gives you purchasing power. If your money isn't growing faster than inflation then you are losing your purchasing power to inflation. It's that simple.
I often hear statements like "We can't afford to invest our money in retirement because we can't afford to lose it."
To which my question is this:
Are you certain that your retirement money today will buy your favorite box of cereal 30 years from now? (It doesn't have to be cereal. Insert whatever your favorite item is in place of cereal and the point remains the same).
If you aren't sure, it might do you some good to spend an hour with me or somebody projecting your probable living costs and probable income over the next 30 years because statistically speaking, that's how long you, your spouse or both of you will likely live in retirement.
What I see way too often is that people do not mentally account for the compounding effect of inflation over a retirement that will last 20 to 30 years.
Here's a quick example:
Just based on the historical inflation rate of 3% annually a box of cereal that costs $5 today will cost around $10 in 25 years.
If your money isn't growing at a rate of 3% or more on average then you are losing your money whether you realize it or not.
If your retirement money is in cash, CD's, bonds, pensions, annuities, etc. inflation will overwhelm your purchasing power at some point during those 30 years. This isn't a matter of if but when.
Don't worry. It's a common misconception and one most of us default to. We assume that the biggest issue in retirement is losing our"money" or our principal dollar amount. However, the biggest risk in retirement is losing our purchasing power. There is a huge difference between those two things.
The problem we need to solve is this:
How do we invest your retirement money so we create an income that rises more than inflation for the next 30 years?
Retirement will last 20-30 years and during that time your living costs will double.
What's your plan to double your income during that time?
If you don't have an answer to that question you need one. Talk to me or any advisor you trust to help you create a retirement plan that solves that question.
In conclusion, I'm not saying your income isn't enough today when a box of Captain Crunch costs around $5. I'm asking, have you made a plan to afford that same box of Captain Crunch when it costs $10 in 25 years?