How to Project Retirement Income Needs With Inflation

For those reaching retirement age, the issue of providing adequate income throughout retirement is naturally a concern among financial professionals and the workforce alike. While some in the workforce are aware of the value of their accumulated savings, many may overlook the impact inflation will have on the longevity of their assets and investments. Learning how to project retirement income needs with inflation is a critical component to post-career planning.


  1. Image titled Project Retirement Income Needs With Inflation Step 1
    Determine your monthly income needs at the beginning of retirement by estimating your recurring expenditures and planned purchases.
    • Financial professionals often recommend projecting approximately 60 to 80 percent of your pre-retirement income. Your particular situation may require more or less income than this. While your budget may no longer include some employment-associated costs such as commuting, medical bills and other costs will almost certainly increase dramatically as you age. Furthermore, you might have plans to travel the world during retirement, or make annual gifts to your family. In any case, an accurate estimate of your monthly retirement expenses is a logical starting point to projecting your retirement income needs with inflation.
  2. Image titled Project Retirement Income Needs With Inflation Step 2
    Choose an economic inflation rate with which you are comfortable that you'll use to calculate your retirement expenses.
    • Common assumptions for annual inflation rates typically range from 2 to 4 percent. Historically, inflation rates range from more than 5 percent for extended periods of time to other periods with little or no inflation, or even deflation. It would be prudent then to assume a relatively modest rate of inflation around 3 percent.
  3. Image titled Project Retirement Income Needs With Inflation Step 3
    Estimate the impact of the expenses which are likely to increase faster than economic inflation. Find a calculator that allows for manipulation of the inflation variable rather than one which assumes the company's generic inflation projection.
    • One mistake future retirees make is assuming their retirement expenses will inflate at a steady pace throughout retirement. While this might be true for expenses like food and gasoline, some expenses are almost guaranteed to increase much faster than inflation. As you continue to age during retirement, medical expenses could begin consuming a growing portion of your monthly income. Based on your medical history and underlying conditions, you may need to add several percentage points to your original inflation assumption.
  4. Image titled Project Retirement Income Needs With Inflation Step 4
    Use planning software or spreadsheet program to complete projections.
    • Many mutual fund companies or brokerage firms have complete planning software available free of charge on their websites. Excel spreadsheets can also help you calculate your retirement income needs by annual inflation factors.
  5. Image titled Project Retirement Income Needs With Inflation Step 5
    Consult a qualified professional to help with your retirement planning. An adviser with the CFP (Certified Financial Planner) designation, for instance, can help you run accurate projections of your retirement income needs with inflation.


  • If using a spreadsheet program such as Excel, you can change the inflation variable throughout retirement instead of using a constant inflation rate. As you project into the later years of life, perhaps past age 80, you can continually increase the inflation rate to reflect the rising costs of health care at a late age.

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Categories: Retirement