Navigating Inflation In Retirement

 In Ozarks Live

Navigating Inflation

Well, inflation is creeping upon us. If I look back to last year, inflation was pretty well under control. For 20 years, it’s run a little above 2% and it did come down to 1.4% last year.  What we don’t realize is that in the last seven months now, inflation has gone up 386% in seven months. It’s astronomical growth. It’s gone from 1.4 to 5.4% and it’s rising.4  In this blog, I’ll explain what inflation is and tips for navigating inflation in retirement.

What Is Inflation?

  • Inflation is the rate at which the value of a currency is falling and, consequently, the general level of prices for goods and services is rising.
  • Inflation is sometimes classified into three types: Demand-Pull inflation, Cost-Push inflation, and Built-In inflation.
  • The most commonly used inflation indexes are the Consumer Price Index (CPI) and the Wholesale Price Index (WPI).3

2% inflation5 is a ‘healthy’ rate of increase.  It is similar to growth in the stock market, a 7%- 9% growth pattern in the stock market is a ‘healthy’ increase.  We want our pay to keep up with inflation but usually, it does not, if inflation is low we have a better chance to stay the pace with the rising costs of goods and services with our current incomes.  Now if inflation gets high, pay for the average person is not going to keep pace.  Most families will have an inverse relationship with the money coming and the money going out of the bank account.   

Pandemic Affects

Is the increasing inflation due to the pandemic?  Yes and no, most likely it is.  We saw demand-pull inflation early in the pandemic when purchases of goods such as cleaning supplies and toilet paper exploded.  The companies couldn’t keep up with the demand and prices eventually rose.  We have seen significantly increased prices for lumber and meat and we’ve seen a shortage of new cars for sale, because of supply chain slowdowns.   Throughout the pandemic, factories are facing shutdowns,  quarantines, supply chain issues and labor shortages.  Economists have said we haven’t felt all of the global impact of the COVID-19 pandemic.

Some examples:

Gas 

January 2021 $2.33 Vs. August 2021 $3.151 Increase of 35%

Used Car Avg Price

$20,942 in 2nd Quarter of 2020 Vs $25,410 in 2nd Quarter of 20212 Increase of 21%

Stable Investments

Navigating inflation in retirement is a big reason why I advocate for planning.  Have a retirement plan that takes rising inflation into consideration.  Diversify your investments into a stable and aggressive mix suitable for your situation.   If you’re more conservative, you’d look for a more stable environment than instead of throwing everything in a bank CD, which is not paying anything, look to insurance companies with fixed or index type annuities that offer guaranteed income options. Now, when inflation is doing this and we’re looking for income to supplement, but we don’t have a risk tolerance, what do you do? You look for tools that are going to provide guaranteed income options. Investing in stocks with dividend options will provide income when companies face high demand.

 

Budget In Retirement

Then spend wisely. When you’re retired, you need to budget. I encourage all of my retirees to save money even though they’re retired. Now, the advantage of having a sustainable income is that if you’re retired, that income comes every month. So if you spend every bit of it, that’s fine, you get it next month also.

Advisor Review

Finally, navigating inflation in retirement may not be possible if you don’t meet with your financial person on a regular basis. Too many people go too long without having a discussion with their financial person. If you’re having trouble getting that done, call me.  I will be happy to give you an independent opinion on your situation. 

Be Prepared

Although you may not be able to get completely ahead of inflation, by following the tips above your retirement plan may be set up to protect your savings and minimize the potential risk to your future income.   For customized financial solutions that help protect your assets and a guide to navigating inflation in retirement, contact The Resource Center at 417-882-1800 or resourcecenterinc.com.

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Sources:

1- https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=emm_epmr_pte_nus_dpg&f=m

2- https://www.edmunds.com/industry/press/used-vehicle-prices-expected-to-climb-to-record-highs-as-new-vehicle-prices-stay-steady-in-q2-according-to-edmunds.html

3-https://www.investopedia.com/terms/i/inflation.asp

4- Usinflationcalculator.com

5- https://www.thebalance.com/current-u-s-inflation-rate-statistics-and-news-3306139

 

Guarantees and protections provided by insurance products, including annuities, are backed by the financial strength and claims-paying ability of the issuing insurance carrier. Fixed index annuities are designed to meet long-term needs for retirement income. They provide guarantees of principal and credited interest, and a death benefit for beneficiaries. The interest credited on your contract may be affected by the performance of an external index. However, your contract does not directly participate in the index or any equity or fixed interest investments. You are not buying shares in an index. They are subject to surrender charges and may have applicable fees. Guarantees are backed by the financial strength of the issuing company. Annuities are not bank or FDIC insured. Investing involves risk, including the potential loss of principal. Our firm is not affiliated or endorsed by the U.S. government or any governmental agency. The Resource Center, Inc. is an independent financial services firm that utilizes a variety of investment and insurance products. Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM). AEWM and The Resource Center, Inc. are not affiliated companies. 1056445-9/21

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