One of our recent blogs discussed how you could use the “Rule of 72” to get a better feeling about how much you’ll need for retirement (See “Rule of Thumb Puts Retirement Needs in Perspective”, February 4th, 2011).

At the present, inflation is fairly tame, but we are seeing signs of trouble ahead. Recent articles in the newspapers and on TV talk about rising food prices. The unrest in the Middle East raises the specter of higher gasoline prices. There were already predictions of $4.00 per gallon gas prices for this summer, prior to the upheaval in Egypt.

Our Rule of 72 shows that at 3% inflation, the cost of living will double in 24 years. If inflation is 4%, it will double in just 18 years. If you expect to live until your eighties and retire at 65, you can therefore expect to see a doubling in your cost of living during your retirement years.

It’s not surprising then that Saturday’s Wall Street Journal included an article about how tough it’s going to be for the Baby Boomers to have enough money for a comfortable retirement. In the article, titled “Retiring Boomers Find 401(k) Plans Fall Short” (E.S. Browning, Saturday/Sunday, February 19-20, 2011), Mr. Browning states: The median household headed by a person aged 60 to 62 with a 401(k) account, has less than one-quarter of what is needed in that account to maintain its standard of living in retirement, according to data compiled by the Federal Reserve…”

Mr. Browning went on to say that 60% of households nearing retirement age have 401(k) accounts. Those accounts he says: “represent the majority of most people’s savings”.

If you are like the typical person nearing retirement, you don’t have a lot of time to make up the difference. You may have to work longer, save more, spend less and plan on a more austere retirement budget. If you have a hobby that you can turn into a small business, you may be able to supplement your retirement income and perhaps make up for the likely shortfall. At the same tim,e you’ll be doing something you love, so it won’t really seem like work!

Most people, unfortunately, have no idea of what they will need to retire. If you haven’t done any planning, you should consider seeing a professional to help you make the most of what you have and the time left until retirement. One thing is quite certain. With the state of our economy and the prospect of higher prices, taxes and inflation, you need to increase your savings as much as possible to prepare for a comfortable retirement.