Share this Page URL

Chapter 5. Developing Your Retirement Pl... > Eight Steps to Financial Independenc... - Pg. 56

Developing Your Retirement Plan 56 So to ensure that our pension does not lose buying power after we retire, we need to buy inflation insurance. Who pays for inflation insurance? We do, of course. How do we figure out the cost of inflation insurance? We answer the same two questions we asked in Step Three: · How long will I live? · How will I invest my money when I'm retired? Using Figure 5.7, we can use the length of our retirement period and the rate of return we expect on our investments to arrive at what we call the money factor . We multiply that factor by our total pension income (see Figure 5.4, box E) to determine the additional money we'll need to maintain the buying power of that pension. In other words, the cost of providing inflation insurance for that sum.