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Hello,

My husband is in the fortunate position of being able to retire with a pension in a few years (law enforcement). There is no cost of living adjustment, and we are wondering what other people have done to adapt or work around that. What seems like a lot of money now might now be as much in 25 years, and we hope we'll be drawing it for quite a while.

Thanks for any input or suggestions.

-Molly
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Hasten, and open up a ROTH IRA while he is still working. Talk with your accountant about this. That should help with inflation.

Donna
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mollyd77 asks,

There is no cost of living adjustment, and we are wondering what other people have done to adapt or work around that.

One way to estimate how much in savings you need to keep up with inflation is the difference in cost between an inflation-adjusted pension and a non-inflation- adjusted pension.

For example, right now a 55-year-old would pay an insurance company $326,000 for a $1000/month, inflation-adjusted pension. Without the inflation-adjustment, the cost drops to $214,000.

So someone with a $1,000/month pension should have about $100,000 in savings just to keep up with inflation.

intercst
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Thanks for all input. One thing I'm considering is laddering CDs (eg, take each months pension payment and put it in a CD and basically live without the pension for a year)

r am I thinking of that wrong? I mean, $1,000 put into a year long CD would return, say $1,050. And then I'd take the original $1,000 and reinvest the $50. If that was done every month, would that extra $600 basically equal the inflation? Or am I completely muddled in my thinking?
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mollyd77 asks,

r am I thinking of that wrong? I mean, $1,000 put into a year long CD would return, say $1,050. And then I'd take the original $1,000 and reinvest the $50. If that was done every month, would that extra $600 basically equal the inflation? Or am I completely muddled in my thinking?

Right now you can only get about a 2% yield on a 5 year CD, not 5%. And you have to pay taxes on the 2%, leaving you with something less.

The problem is what happens if we have a situation like the late 1970's where the inflation rate is 10% per year, or more. That's why you need a big pot of cash to protect yourself under those conditions.

intercst
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Assuming your husband is still pretty young and in good health, he could find himself another job to bring in extra cash. That way you can sock away, or invest some of the pension money. You do not mention SS, IRA, so I am thinking he is not yet 65?

He needs to find something to do, as retirees now live many years. Might as well bring in another salary.

Birgit
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Yes, he will be young enough that he will want/need to get another job, and I hope to start working again soon (kids are in school soon)

Thank you all for your input. If I come up with something brilliant (unlikely) I'll try to come back and post it.

It just seems like if inflation is rising tide, if you can just find a way to prepare for it. It's only a few % a year, but it's constant.

-Molly
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