It’s impossible to ignore the rising costs in everyday expenses right now and it’s clear that inflation will need to be incorporated into planning moving forward. Today we’ll explore the impact inflation is having on retirees and pre-retirees and discuss the things you should be considering with your financial plan.
(Click the featured times below to jump forward in the episode)
The ups and downs of the economy over the past couple of years have created choppy financial waters, but inflation has now emerged as a significant problem that needs to be accounted for during planning.
That’s why we wanted to carve out some time on the podcast to dive into inflation because it’s an area we hear from clients on frequently. By the way, you’ll notice a little difference in the show. Not only is Dan back on with Nikki, but we’ve rebranded the show to the Retirement Rescue Podcast. That’s the title of a book we published but it also accurately reflects the state of retirement planning with the list of new challenges people are facing.
So that takes us back to inflation. How significant is this 7% increase that we’re dealing with? Well, inflation isn’t always so noticeable in day-to-day prices, but over time it becomes clear. When Dan was born back in 1963, a stamp cost $0.04. Today that same stamp will cost you $0.58. This is just one simple example but you can find many others just with a single trip to the grocery store.
Two reasons for this recent rise in inflation. The first is the supply issue. Fewer goods are being delivered which leads to empty shelves, and that creates added demand. More demand means higher prices. But the second reason is there is just so much more money in circulation. As that supply of dollars goes up, the value in turn goes down.
The obvious negative to all this is that your money doesn’t go as far as it used to. Your purchasing power has decreased and that can really put a strain on retirees. And since inflation affects the things you need to buy each day to survive, it can oftentimes impact you harder than a market drop.
Well, what should you be doing? One thing we suggest is to look at your home value. We’ve seen incredible demand on homes, which has driven up prices. That’s led to many people taking advantage of that equity in their how by taking out a line of credit against it. You should check to see what the interest rate is on that loan now and keep an eye on it because it can change and that adjustment will probably be in the bank’s favor.
The other consideration with your home is for people that currently hold an adjustable rate mortgage. If this is you, it might be time to make the switch over to a fixed rate mortgage and lock in the current rates in the event that they jump significantly.
That is just one of the areas that need your immediate attention but also make sure that whoever is building your financial plan is doing so with inflation adjustments. We have used around 3-3.5% inflation rate for consumption, and we’ll apply that to someone’s spending in retirement as we calculate what they’ll need. This helps you get a much more accurate picture of your financial future.
With the future of inflation being uncertain, now is the time to be taking steps to ensure that your money is outperforming the rising cost of living. We’re here to help with that if you need to build a plan or just need a second opinion. Either way, take control of your finances now and put yourself in better shape for tomorrow.
Listen to the entire episode or click on the timestamps below to hop around to different topics.
[0:35] – Why we rebranded the podcast
[1:28] – Examples of price increases
[6:20] – Two reasons for the recent inflation rise
[7:00] – Used cars prices
[9:45] – Look at your home value
[11:48] – Real negatives to inflation
[13:29] – Inflation adjustments in planning
[16:59] – Inflation’s evil twin brother, taxation
[18:54] – Being too conservative is actually aggressive
[21:23] – Closing thoughts
The Full Picture:
“If you have debt, you should seriously thinking about retiring that debt…You want to, perhaps, pay that off now rather than wait and see what the interest rates are going to be because they’re probably going to be a lot higher.”
– Dan Cuprill
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The host: Nikki Earley – Schedule A Time To Meet – Or Call: (513) 563 – 7526