Temporary inflation can damage retirement planning – St George News
File photo from CasPhotography / iStock / Getty Images Plus, St. George News
REPRESENT –Warren Buffet once pointed out that it is obvious that inflation is far more destructive to prosperity than any tax imposed on us by the government.
Man hand protecting piggy bank on wooden table. Save money and financial investments, place and date not specified | File photo of
Marchmeena29 / iStock / Getty Images Plus, St. George News
You probably noticed that consumer prices became unscrupulous in 2021. The prices of goods and services are rising as fast as they have been in over 10 years, threatening to put pressure on households and stifle a potential economic recovery after COVID-19. Economists, bankers and experts insist that inflation rates reflect trends caused by pandemics and are temporary.
However, many retirees, early retirees and investors fear that prices will continue to rise, slowing economic growth and causing stock prices to collapse. If you’re of a certain age, you may remember double-digit inflation in the 1960s and 1970s, which peaked during the Jimmy Carter administration.
Like all inflation rates, the price hikes were driven by several factors, including a Middle East oil crisis, excessive government spending, and a sluggish US Federal Reserve.
Inflation is the silent thief of pensioners’ wealth.
Unfortunately, it is impossible to know if our currently rising prices are temporary or a sign of the future. Still, many economists believe that the diversified, globally integrated US economy is large and resilient enough to avoid hyperinflation in countries like Zimbabwe.
However, if you are about to retire, stay vigilant about inflation. Even if inflation lasts for just a few years, it can wipe out a significant portion of your retirement savings. An annual inflation rate of only 3% seems insignificant. However with a rate of 3%, If you currently have $ 4,000 monthly spending it will be $ 5,000 a month in just 10 years.
Because of this, it is vital for those within 10 years of retirement to review their plans and adjust to worst-case inflation levels.
Many people are unaware of the impact inflation has had on their savings. For example, if you own an asset that generates 4% return excluding income tax and the annual inflation rate is also 4%, this scenario is equivalent to 100% tax during a time when inflation is zero!
File photo from Unsplash, St. George News
If the inflation rate rose to 5% and your wealth was still only 4%, you would be paying a 125% tax.
Build inflation protection into your financial plan
Inflation is a clandestine tax that, while not entirely unnoticed, is not as obvious as government taxes. Government tax increases, for example on income or wealth, are easier to spot and feel. Inflation, on the other hand, is more like bleeding from a thousand tiny needle sticks rather than a gaping wound. Inflation is expressed in a few cents more for a loaf of bread, 5 cents more for coffee, and so on.
Inflation leaves you scratching your head wondering how your paycheck got away so quickly.
Retirees and departures must work with their counselors to protect their assets in a few years’ time. Your savings need to be protected as much as possible or you risk running out of money when you need it most. Your advisor or advisory team can recommend different strategies using, for example, certain types of annuities, cash flow investments, or even precious metals or cyber currencies.
Depending on your goals and risk tolerance, alternative investment strategies can create a protective barrier against elements of erosion, including inflation, risk sequence of returns, and other attacks on your wealth.
The bottom line is, like an uninvited houseguest, inflation will inevitably hit when you least expect it, and it will outlast your greeting almost every time.
Don’t forget to plan it out.
Copyright © Lyle Boss, all rights reserved.
Lyle Boss is a member of Syndicated Columnists, a national organization that advocates a fully transparent approach to money management. As an asset protection instructor, he has helped thousands of seniors find their financial retirement options. Its clients include government employees, teachers, doctors, farmers and business people to name a few. Boss has been actively teaching advanced estate planning and wealth preservation for more than 20 years in locations like the University of Utah and in over 200 Senior Retirement Consumer Education Workshops throughout Utah, Idaho, and Wyoming. Boss and his wife Deanna live in South Ogden and St. George, Utah.