Inflation Rates and the Value of the Dollar

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This paper highlights the difference in the projected social security benefits income and the buying power of the income based on a given inflation rate. The report will also outline whether individuals can survive only on handouts from social benefits alone. I will also cover some of the significant measures and initiatives an individual can undertake to increase their income to maintain their living standards.

Projected Social Security benefits at the retirement age of 65 years are 48,580
The current age is 25 years
Retirement age is 65 years (65-25) =40 years
The annual inflation rate is at 3%
Utilizing the above information to calculate the projected decrease in the value of the dollar due to different effects of inflation, it is evident that;
Based on an inflation rate of 3.00%, the value of $48,580 will be reduced to $14,892.53 in 40 years which portrays how inflation rates have a great impact on the dollar’s value.

Annual Benefits

Sadly, surviving on a projected future income of $48,580 would be equivalent to an individual living on an income of $14,892.53 at retirement. Inflation plays a significant role in determining the value of the American dollar since any slight alteration in the inflation rate brings about a corresponding change in the dollar’s strength. The value of social security benefits is not subject to any shift in the rate of inflation (Townes, 2019). The value will not change to cover up for a negative shiftin inflation, increasing the cost of living (Townes, 2019). At retirement, the Social Security benefit will not be enough to cater to my living standards, which requires an individual to have alternative sources of income.

The Possibility of Surviving on the Projected Social Security Benefits

Surviving on a Social security benefit of $48,580 at retirement would be challenging because the purchasing power and the dollar’s value have greatly decreased as the wants of the retirees keep on increasing. Human wants tend to be insatiable and hence keep on recurring in different aspects of life (Townes, 2019). Some of the major areas where an individual needs to invest more financial resources to live a comfortable and sustainable life include proper housing, food, and quality healthcare. The main impact inflation has on the value of the American dollar is that it decreases the value over a given period of time (Townes, 2019). This is because inflation increases the cost of goods and services required for survival. When the dollar’s value drops, the number of goods and services that can be bought using the dollar also decreases.

Factors to Consider for Acquiring other Sources of Income and Ensuring Proper Utilization of Financial Income

Financial Literacy

One of the major factors that I will ensure is adhering to financial literacy principles to enable me to manage and account for all my financial resources. Financial literacy is the possession of the appropriate set of skills and knowledge on how to effectively financial resources (Borzykowski, 2020). Acquiring the appropriate knowledge of financial literacy will enable me to make proper investment decisions which will help me achieve long-term goals. Long-term goals involve investing huge amounts of financial resources towards creating lifetime or generational wealth. Generational properties such as businesses are investments that will bring constant returns to an individual even after retirement (Borzykowski, 2020). Directing financial resources towards profit-making initiatives is one of the main ways of generating money to cater to your living standards.

Investing in Family and Insurance Coverage

Investing in the young generation is also one of the major factors that contribute to an individual’s better living after retirement. The younger generations are the individuals who will take care of the elderly people and other special needs individuals within the society. Investing in their needs, such as education, will enable them to have a better livelihood and have the capacity to care for the elderly appropriately. Ensuring an appropriate lifestyle while still at a younger age is also another major way to acquire a peaceful retirement lifestyle (Borzykowski, 2020). This involves investing in healthcare insurance packages that would be effective even after retirement.

Investing in Retirement Schemes

Investing in other different retirement schemes is also a better way of helping clients secure their future. There are organizations licensed by the government that is allowed to collect individuals’ monthly retirement contributions (Townes, 2019). Most such organizations have been awarded tax breaks for imposing on their clients to motivate them to save for their retirement. The government has also encouraged employees to ensure that a certain percentage of the employees’ salaries should be channeled toward retirement benefits.

Investing in Annuities

Investing in annuities is also a major factor to consider when having an affordable retirement lifestyle. Annuities are considered effective because they are not exposed to any form of market risk, and they have a guaranteed fixed rate of return. Investing in life insurance is another significant approach to having a stress-free retirement life. Life insurance majorly aims to retain an individual’s financial state if they lose their jobs or have an accident (Townes, 2019). An individual pays a monthly premium that will be utilized to indemnify them in case of retirement.

To conclude, Social Security benefit funds are not sufficient to be utilized as the only source of income after retirement. The government only gives out handouts to individuals because they do not have additional sources of income, and they make up the vulnerable groups in the community (Borzykowski, 2020). Individuals are encouraged to start considering adopting proper retirement plans, which will enable them to have a smooth transition into the retirement period.

References

Townes, E. (2019).Study: Social security buying power down 33% since 2000. Money & Markets.

Borzykowski, B. (2020). The ultimate retirement planning guide for 2021. CNBC.

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