The expenses you calculated on the Estimated Monthly Cost of Living and Larger Future Irregular Expenses worksheets are based upon today's prices. But we all know that today's prices will not be accurate next year, and certainly not 20 to 30 years from now when you plan to retire.

Inflation, even if it is at a low rate, will erode the value of your retirement savings. The longer the period you plan to be retired, the greater the potential erosion. Long-term projections are hard to make but should still be attempted. Many of your financial decisions will be greatly affected by inflation.

In order for you to estimate your income needs at retirement more accurately:

• You need to know how long it will be before you retire.

• You need to predict what the rate of inflation will be (not an easy task, even for an economist).

• You will need to adjust your estimated expenses or adjust rates for different categories of expenses.

• You need to begin with estimates based on current prices.

1. Choose the number of years until your retirement starts from the lefthand column of the table below (subtract your age now from 65 or from the age at which you plan to retire).

2. Select an inflation rate from the row across the top of the table. Inflation cannot be predicted from year to year. The ten-year average inflation rate from 1985 to 1995 has been 3.6 percent.

3. Read across and down to find the appropriate inflation factor corresponding to your predicted rate of inflation (for example, 10 years at 6 percent inflation gives a factor of 1.79). It's better to estimate that inflation will be too high rather than too low.

4. Transfer the totals from each category on the Estimated Monthly Cost of Living worksheet. Multiply your estimated total retirement expenses on the Estimated Annual Cost of Living worksheet by the inflation adjustment factor to get an idea of the income you will need your first year of retirement (for example, $14,000 x 1.79 = $25,060).

Years to Retirement	Annual Rate of Inflation (in Percent)
	3	4	5	6	7	8	9	10	11	12
1	1.03	1.04	1.05	1.06	1.07	1.08	1.09	1.10	1.11	1.12
2	1.06	1.08	1.10	1.12	1.15	1.17	1.19	1.21	1.23	1.25
3	1.09	1.13	1.16	1.19	1.23	1.26	1.30	1.33	1.37	1.41
4	1.13	1.17	1.22	1.26	1.31	1.36	1.41	1.46	1.52	1.57
5	1.16	1.22	1.28	1.34	1.40	1.47	1.54	1.61	1.69	1.76
6	1.19	1.27	1.34	1.42	1.50	1.59	1.68	1.77	1.87	1.97
7	1.23	1.32	1.41	1.50	1.61	1.71	1.83	1.95	2.08	2.21
8	1.27	1.37	1.48	1.59	1.72	1.85	1.99	2.14	2.30	2.48
9	1.31	1.42	1.55	1.69	1.84	2.00	2.17	2.36	2.56	2.77
10	1.34	1.48	1.63	1.79	1.97	2.16	2.37	2.59	2.84	3.11
11	1.38	1.54	1.71	1.90	2.11	2.33	2.58	2.85	3.15	3.48
12	1.43	1.60	1.80	2.01	2.25	2.52	2.81	3.14	3.50	3.90
13	1.47	1.67	1.89	2.13	2.41	2.72	3.07	3.45	3.88	4.36
14	1.51	1.73	1.98	2.26	2.58	2.94	3.34	3.80	4.31	4.89
15	1.56	1.80	2.08	2.40	2.76	3.17	3.64	4.18	4.78	5.47
16	1.61	1.87	2.18	2.54	2.95	3.43	3.97	4.60	5.31	6.13
17	1.65	1.95	2.29	2.69	3.16	3.70	4.33	5.05	5.90	6.87
18	1.70	2.03	2.41	2.85	3.38	4.00	4.72	5.56	6.54	7.69
19	1.75	2.11	2.53	3.03	3.62	4.32	5.14	6.12	7.26	8.61
20	1.81	2.19	2.65	3.21	3.87	4.66	5.60	6.73	8.06	9.65

Example:

1. You would like to retire at age 62, 11 years from now.
2. You think the inflation rate will rise slowly and average about 5 percent.
3. 11 years at 5% = 1.71 inflation factor
4. Your estimated retirement expenses of $20,400 x inflation factor of 1.71 = $34,884 income needed for the first year of retirement to live as you plan to.