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Retirement Planning
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24 June 2011
The best savings vehicle is a Unit Trust Based Education Fund (UTBEF), says Hubert Feris, a Financia...
19 June 2011
A proposed system of tax credits for medical scheme contributions could make scheme membership more ...
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 Home  Retirement Can you retire?
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Inflation - Rule of 72
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 ccept it. Inflation will erode the purchasing power of your retirement income. To illustrate the point the diagram shows just how quickly the purchasing power of money halves.
At 15% inflation it could take about five years to halve the purchasing power of your money, while at 5% inflation it takes over 14 years.
A clever rule of thumb - refered to as 'The Rule of 72 - is very useful when talking about inflation. If you divide 72 by the assumed inflation rate, you will know approximately how long it will take to halve you money. (For example, 72 ÷ 15 = 4,8. It takes inflation approximately five years to halve your money at 15%.)
While annuities can have an escalation clause built into them, this often does not cater for the full effect of inflation.
Regular reviews and adjustments to our retirement plans are the only way to combat an ever-rising cost of living and the effects of inflation.
"The statistician who calculates inflation rates doesn't see my shopping basket." Paradox or perception - it doesn't solve the problem.
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2002-2005
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