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Inflation Is The Silent Killer Of Your Retirement Plan Thumbnail

Inflation Is The Silent Killer Of Your Retirement Plan

High Blood Pressure is often referred to as the silent killer of human beings. It has no obvious symptoms to indicate something is wrong. Many people don't even know they have it. It develops slowly over time and although it can't be cured, it can be managed. Your retirement plan has a similar silent killer...Inflation. And with media banging us over the head daily about how inflation is on the rise it looks as if it's becoming a self fulfilling prophecy.

But here's some good news. There is one way and one way only to beat inflation in retirement and I'm going to tell you that answer now. The answer is a significant portion of your retirement money must be invested in equities. Notice I said must be and not needs to be or should be. It must be! Let's look at why that is.

How Long Will Your Retirement Last?

Let's assume you retire at age 62. There's a high probability that your retirement will last 20 years and possibly even 30 years. That's great news assuming you a retirement plan that was designed to last 20-30 years. Here's the deal...none of us know exactly when retirement will end but we do know approximately when it might. So for this particular example let's use a retirement of 30 years.

What Was The Cost Of A Stamp 30 Years Ago?

In 1990, the cost of a stamp was 25 cents. That same stamp today will cost you 55 cents. Without getting fancy with percentages it's plain to see that the cost has doubled in 30 years. Why is this important? The exact same thing will happen to your retirement income. The amount of income you need to remain comfortably retired right this second will essentially need to double over the next 30 years. If you need $50,000 per year to retire today, you will need approximately $100,000 to keep the same standard of living in the year 2050.

If you haven't got a plan to double your income in retirement over the next 30 years then, without realizing it, you have a plan for running out of money. The silent killer of your retirement plan is Inflation.

Equities Are The Ultimate Inflation Fighter

Here's the good news. SInce 1926-2020, The S&P 500 (That's the 500 most successful companies in the United States) has compounded annually on average at 10% per year. If we back out 3% for which the rate of inflation has compounded annually on average that nets us with a 7% gain ahead of inflation.

Bonds have compounded annually on average at 3% and poor Gold has compounded on average at 1%. Don't get me started on mind numbing stupidity of gold as a long term hedge against inflation. Read more about my thoughts on Gold here.

What I want to illustrate is many retirees are told by advisors and other well meaning folk that they should move their money to something "safe" in retirement such as bonds. If bonds on average compounded at 3% which is the same rate on average inflation compounds then at best you will be treading water in retirement. And you will have no room for error. You will need to throw water out of the boat just as quick as its coming in.

It doesn't have to be that way. At 80/20 Financial Services, we factor inflation into every income plan we prepare. We know its coming and we know the only way to beat it is to be the owner of the most successful companies in The United States and the world for that matter. We set up every income plan to defeat inflation long term. In our opinion, there is no alternative. If you fail to plan, then you have planned to fail.

What To Do About It?

At retirement, your entire financial future essentially boils down to one binary question. Will you outlive your money or will your money outlive you? Everything else in retirement comes secondary to that one question. At 80/20 Financial, our mission is helping clients address that question. We do this by creating a retirement investing and spending plan that answers that question. 

You Need A Plan

A goal of retiring - without a plan - is simply a plan to run out of money. At 80/20 Financial Services we specialize in helping cooperative employees plan their retirement. We can show you how to turn your 401k and your R&S lump sum into a stream of income just like when you were working while also helping you achieve your desired financial outcomes in retirement.

If you're age 50 or over and still in the accumulation phase (pre-retirement) we can help you figure out where you need to go and how to get there. If you are retired or nearing retirement, we can create a plan which will outpace inflation and accomplish any other retirement goals you might have.

The consultation is free and without obligation. Contact us to set up a consultation.

For more articles about retirement planning and investing click here. 

Brian Coleman/Electric Cooperative Retirement Specialist

80/20 Financial Services is an Independent Registered Investment Advisory Firm. We help Electric Cooperative Employees create their retirement income and investment plans.

Photo by Will O on Unsplash