Retirement income update:
I’m still waiting for the final figures from my defined benefit pension plan, but so far estimates point to a monthly net pension @ ~ 99% of my working net pay. Although I’m pleased, it doesn’t mean I’m getting a huge pension.

When I worked, I lived on a pre-determined (by me) portion of my income. I sheltered the maximum ($41,000 a year in my 403b and 457 accounts) and 8% of my gross income was contributed to the state teachers retirement system as a mandatory deduction. With so much being sheltered, my take home pay was reduced to a level I became accustomed to living on.

When I receive the final adjustment I’ll see how accurate the estimate is, but I’m grateful no matter what. Not surprisingly, I’ve been told it will likely take several months for the state to process the final figures from my employer (final compensation and unused sick leave).

A concern at this point is whether I’m having enough federal and state taxes withheld. I can adjust withholdings if need be, but I’m inclined to wait until my 2008 taxes are figured. Since I had a fairly large amount withheld in the 8 months of 2008 that I worked, and my gross pension is only about 46% of my previous gross pay, I’m counting on having had enough taxes withheld for the year. I guess I’m just too much of a control freak to like paying more in taxes than I have to… and I want my $$ to work for me, not Uncle Sam. To be on the safe side, I’m reserving 33% of any consulting income for taxes.

Thoughts about inflation:
Another concern is the impact of inflation on my retirement income. I think this is an issue commonly overlooked in retirement planning. To illustrate, a hypothetical pension of $4,000 a month will need to be about $5,375 in 10 years to keep up with a 3% inflation rate.

My pension plan provides for a mandated 2% COLA each year, but I am planning for at least 3-4% inflation. If my retirement income cannot keep up with inflation, I’ll look for ways to make up the shortfall.

First line of defense will be to reduce expenses but not to the point of feeling deprived. And, reducing expenses is a challenge I’m planning to undertake, regardless of inflation. Next, I’ll tap my taxable accounts and draw from the tax-sheltered accounts last. Right now my plan is to leave my 403b and 457 funds intact until I am 70½, but it’s reassuring to have these funds as a backup.

Ideas to soften the impact of inflation:
• be more frugal/ reduce expenses
• rethink travel plans (get frugally creative)
• withdraw shortfall from taxable reserves
• increase part-time work

Any other ideas to offset inflation?