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We all want a colorful retirement with opportunities to travel, visit grand kids, start a hobby, golf, read a book, or just relax in the front porch rocking chair.

But before we get too cozy, we have to make certain we have prepared for the three threats to retirement. There are other threats to be sure, but these three are “normal” and “expected,” and if not planned for, then there is a strong chance we could outlive our money!

• Inflation

• Real Rates of Return

• Life Expectancy

Inflation

The most significant reason for planning your finances is to ensure that your money stays even with, and hopefully outpaces inflation. Inflation is the silent killer of the purchasing power of money. Prices tend to go up over time. Your plan has to cover these increases.

Financially, you have to at least keep your purchasing power to stay even with inflation. If you put all your money in the bank and delay creating a plan, you are indeed making a decision and starting a plan.

Inflation is the increase of the cost of goods and services. We recognize that things may cost more next year than now. This is expected for a strong economy that continually has increasing growth. Inflation has been very low in the last decade when compared to historical numbers but is likely to increase again.

Real Rates of Return

Not all investment choices will keep you even with or ahead of inflation. You have to invest to beat inflation and the impact of taxes. The real rate of return that I am talking about is (a) the growth of your money after you consider your tax bracket and (b) the increasing cost of goods and services (inflation). Remember, purchasing power is measured from your take-home money and its ability to purchase goods after the impact of inflation. You have to keep taxes and inflation in mind when you calculate the real rate of return. Historically, the “easy” investments of CDs and other bank deposit accounts don’t keep you even with inflation. You have to “grow” some of your money to outpace inflation.

Life Expectancy

The final reason why creating your financial plan is so important is that the average life expectancy is getting longer and longer. You have to create a financial plan that anticipates your increasing longevity.

I have said it before and will say it again: “You don’t want to be an old lady on a fixed income.” You have to create a growth plan for life! If you have only traditional bank deposits (CDs, checking, savings, money market accounts), you are on a fixed income.

If you look at life expectancy chart, a sixty-year-old woman’s “expectancy” is 24.37 more years. This means there is a 50 percent chance she will live longer than 24.37 more years. If she invests money in bank deposit accounts, she will quickly lose purchasing power and be in trouble in years to come.

How much do you think a stamp, or car, or home, or that rocking chair will cost in 24 more years?

Whether it is through death, divorce, or choosing to remain single, women have up to a ninety percent chance at some point in their lives of having to be solely responsible for their finances. Even in strong healthy marriages, many women need to take a greater interest in the household finances. Now, with the baby boomers moving toward retirement, the number of women who will find themselves financially alone is predicted to dramatically increase.

Why bother to create a Plan? Because if you don’t, these three threats will likely impact your colorful retirement.

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Source by Shak Hill