How Does Inflation Affect Retirement? – Finger Financial Five #22

FFF #22

“Inflation is taxation without legislation.” – Milton Friedman

What cost more, your first house or the latest car you purchased? What was the lowest price you ever paid for a soda? Postage stamp? Newspaper? What are the prices of those items today?  The difference in price is due to inflation.  

The medical profession refers to high blood pressure as the silent killer. In investing, the silent killer is inflation. The minimum return on any retirement investment must be at least equal to inflation. Here’s why. Suppose your retirement goal is to withdraw $90,000 per year from your IRA. To maintain your purchasing power, you must adjust your withdrawal amount for the inflation factor. That means that to get $90,000 per year at an inflation rate of 3%, your withdrawal amount in year 15 will be $140,215.  Of course, we have to consider taxes as well.  

Retiree inflation is normally higher than normal inflation.  Why? Retirees spend 3x more than a working adult on medical expenses and healthcare inflation increased by 4.6%, while inflation averaged 2.4%.Therefore retirement income for a couple may need to DOUBLE over their lifetime.  Retirement income planning considers, inflation, taxes, healthcare expenses, investments, expected returns, and behavior, just to name a few.  

When looking at all the factors to consider, retirement planning can be overwhelming.  Unfortunately, people sometimes freeze and do nothing.  They make excuses not to act.  They may say, I have always done it this way, or my neighbor does it this way or on TV they said this or that.  Before they know it, months and years have gone by.  Remember, small changes over time have a huge impact.  Just “lean in” and proceed to the next step.    

I have seen clients start out with negative net worth and are now worth more than $20 million.  It does not happen overnight.  It starts with small steps in the right direction or a minor tweak in your sails.    

Like inflation, small changes have a huge impact over time. When a ship leaves shore a 1% degree off course could lead to being 100s of miles off course, if not adjustments are made.  Small adjustments keep you on course.

Click here to see what two of my favorite investors, Warren Buffett and Charlie Munger, said about inflation and stock returns

Ensuring the purchasing power of your income can be tricky.  Let me know if you have any questions.  Click here to setup a call. 

Current reading and listening: Naval: HappinessStillness Speaks, the Company of One, and about anything on Taxes and Retirement.  

On the lighter side, we went to Charleston, SC this past weekend.  Elliott wanted to do some indoor rock climbing.  He used to be very good.  He said that he should be a lot better because he is stronger.  I mentioned that he is also a LOT heavier and less flexible. He had a good time, but I turned out to be correct.  Elliott struggled.  You can gain in strength but if it does not grow at the same rate as your weight, you can lose ground.  Kind of like inflation….

Hope all is well with you and your family,


Investment advice offered through Stratos Wealth Advisors, LLC, a registered investment advisor; DBA Riverbend Wealth Management.

This content is developed from sources believed to be providing accurate information and provided by Riverbend Wealth Management. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Stratos Wealth Partners and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

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