Protect Yourself from the High Cost of Living Increases

Graduation is upon us and I am having a difficult time with the reality that my daughter Julianne is graduating from college this month.  I am proud to say that she is graduating from Notre Dame with a business degree, is planning the next stage of her life and looking forward to a new job in the big city.

But how can it be that my adorable middle daughter is old enough to live on her own in the city?  Trust me, I have tried to convince her that the suburbs have some benefits, but she is not buying it. The month of May will not only include a big graduation celebration, but looking for an apartment in the city.

Couple - Stuyvesant Town, Manhattan

Our first apartment was in Stuyvesant Town in Manhattan;  Dan and I were so happy to get married and have a one bedroom apartment for the price of $485 per month. Yes that’s not a typo……the whopping amount of $485 for a beautiful one bedroom apartment with no air conditioning.

The summer months were brutal, but I loved our first home.  Unfortunately for Julianne,  the prices for apartments in New York City have gone up and the same apartment is now renting for over $3000.  The reality of the increase in the cost of living is obvious. What will the cost of the apartment be in 27 more years?

The question is one that is relevant for all of us.  The retirement years for most of us will be around 30 years and planning for retirement needs to include the cost of living increase.  Many are afraid of investing their money and are afraid of losing their principal amount.  However, the more important risk is purchasing power risk, or the ability to purchase all the items that you will need to purchase every year as they increase in price every year.  So the question all retirees need to ask is:

If the cost of your everyday living expenses increases each year by 3%, how will I maintain my lifestyle in retirement without outliving my money?

You need to plan for this increase and invest accordingly in a diversified portfolio.  The cost of living increase that will occur should not be a surprise.  And as long as you set a plan and are aware that holding onto the principal should not be your greatest concern.  Because if it is, then there is a chance are that you will run out of money while trying to maintain your lifestyle before your thirty year retirement ends.

So make sure that you plan accordingly. And hopefully, Julianne will find a reasonable apartment in NY City.  If not, there is always a place for her in the suburbs.

 

 

 

About Maureen Crimmins

Maureen Crimmins is co-founder of Crimmins Wealth Management and a fee-only independent financial advisor. Have a financial question? ASK MAUREEN

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