INFLATION PROOF Your Retirement | 7 Solutions

Inflation is currently measured around 7%.

How does Inflation affect Retirement?

How can retirees make their money last over their lifetimes when prices are increasing rapidly?

Retirees don’t want to worry about money. In retirement, you’ll want to enjoy your family and friends, have confidence in your finances and perhaps make an impact in your community. Understanding how your income sources work and investing appropriately can help address inflation in retirement.

We outline 7 solutions to address inflation while staying balanced in how you manage your retirement finances.

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Show Notes:

Full transcript:


Anthony Saffer & Alex Okugawa

Alex Okugawa 0:00
How does inflation impact your retirement? Today we are going to discuss how to evaluate your retirement income and how to plan for inflation appropriately stay. Ready, Anthony? So inflation, a lot of people know what it is, essentially, it’s rising costs over time. Of course, we’re seeing, in many ways record-breaking inflation numbers, at least in recent history. But let’s look at some averages. So inflation from 1913 to 2009, averaged about 3.1%. A year right. Now, how does this translate into a real-world application? That means prices are doubling every 23 years. So if someone retires at age 65, their costs might double by the time that they reach 88.

Anthony Saffer 0:55
Right. Right. And this has people worried because inflation in 2021 was 7%. Right? So much higher above the average. Now, will it last that high? We don’t know that, but it’s still a concern for

Alex Okugawa 1:06
people. Now we categorize you know, underestimating inflation is one of the five biggest retirement mistakes that retirees need to look out for. Because again, it’s one of those things where it’s sneaky, right? You may not see it day to day, but over time, it starts to compound and add

Anthony Saffer 1:24
up. Yeah, and we’ll post to that guide because people can download it. And underestimating inflation is one of the biggest mistakes that retirees do make. But what I want to take you through is just a plan, right? So how might a retiree evaluate that? So we’re going to look at this chart in basically, just to give you some context, this particular couple, they’re, they’re going to be retiring in about three years, right? The way that their plan is set up is they have enough to get them out to age 95 in terms of their direct income sources, and also their investments, but it’s also very close, they don’t have a huge amount of cushion. Okay, so here, here’s what we want to look at is, when we’re estimating their expenses, we’re estimating that those expenses are going to rise at you know, three to 4% per year, sure, at least looking at the average,

Alex Okugawa 2:12
Interestingly, you bring that up because when we did retirement planning for folks, several years ago, we brought the notion of using three to 4% inflation in their retirement plans, like, why using that high of inflation, it’s been like sub 2%. Are you kidding me? Now, my plan doesn’t look good at all, because you’re using this high inflation rate, right?

Anthony Saffer 2:30
And so using something where we were dependent on those averages, because yeah, you’re below 2%. Now we’re above 7%. So here’s the thing, though, where most people miss it, when it comes to retirement planning, is when you look at it when you look at the blue area here. And then also the light blue on top of those. Those are direct income sources specifically for this couple, it’s Social Security, and then they have a pension. Okay, what you’ll notice is that they’re not increasing, they’re much flatter than the overall expenses in terms of how fast those are increasing. Okay? So people often look and they go, okay, well, this pension and the Social Security makes up a good amount of what I need it, in the beginning, the beginning Exactly. And then you start to see this spread, which is yellow in the orange over here. That’s their investments and what they need to make up the gap. And

Alex Okugawa 3:18
I think that’s one of the biggest mistakes we see a lot of retirees make is they look their own. You know, they’re almost like tunnel vision, right? Look at that first year of retirement. I’ve been working for 4050 years, I’m ready to take the plunge into retirement. And I’ve got all my income mapped out for that first year, but they’re failing to see the big picture and how this might compound. So let’s take a look at some solutions, right? What should people be thinking about when it comes to inflation when it’s staring them down here in the face of retirement? And that the first thing we have here is taking inventory of your income sources? Yes.

Anthony Saffer 3:52
So whatever those income sources are, like Social Security applies to too many people. Do you have a pension? Do you have maybe rental income, and in what is the cost of living adjustment in there, people will get a pension, for instance, and having a cost of living adjustment versus not having one is a very, very big deal. Social Security also does not tend to keep up with the real cost of rising prices.

Alex Okugawa 4:16
Now, the second thing we have here is investing to outpace inflation, right?

Anthony Saffer 4:20
And so we don’t want to be overly conservative with how we invest we need things like generally neat things like stocks or you know, commodities or real estate, things that have equity ownership that can grow and outpace inflation over time.

Alex Okugawa 4:35
Now, number three, we’ve talked about this before, but even with interest rates being very, very low, having a good chunk of stable investments in your portfolio,

Anthony Saffer 4:43
right having that short-term need met in more conservative stable investments. This helps you be a better investor, right? So combining with number two, it allows your stocks to work for you and they are in that major dip which is inevitable, having that short-term stable cash bonds, things like that. You can reach in for that immediate income.

Alex Okugawa 5:03
Again, number four. So security is a big part of folk’s retirement plan. And the key here is making sure you time it correctly.

Anthony Saffer 5:10
Right? Most people don’t realize that by deferring Social Security, at least up till, you know, all the way up to age 70, when it maxes out every year that you wait is about a seven to 8% increase by waiting now, does it always make sense to wait? No, but at least keeping that in mind is important. All right, number five, minimizing debt, right. And we want to take a balanced approach to investments, some people say well take on as much debt as you can at really low rates. And then, therefore, you know, that debt becomes less, you know, as inflation goes up, but you want to be able to manage cash flow and not be restricted by debt payments. And the

Alex Okugawa 5:43
last two, establishing appropriate cash reserves and living within your means,

Anthony Saffer 5:48
right, so still have a cash reserve. And even though it might be very low-interest rates in the bank, it’s something to lean back on. And being able to use that cash to help smooth out, smooth out the bumps, but be very purposeful about it. Because the other thing can be a risk, as well as keeping too much in cash, where you’re not earning on anything and losing real value.

Alex Okugawa 6:07
So again, to summarize here, what we have is to take inventory of your income sources, Social Security, pension, etc, then what we want to do is look at investing to outpace inflation, right? We need to take a little bit of risk to get the growth to beat inflation long term. But we also want to invest enough in stable money so that we can ride out any the bumps and the fluctuations along the way, right, at least what we’ve been seeing year today so far here in 2022. We want to think strategically about Social Security, the timing, when to take it sometimes it’s best to delay up until age 70. Again, minimizing your debt. The worst thing Well, one of the worst things you can do is retire with a bunch of debt, making sure you have adequate emergency reserves, and making sure that you’re living within your means. Absolutely. And now let us know what you think. Does inflation Have you worried about your retirement plan? Let us know in the comments below. And if you have any ideas for future videos, please let us know if you enjoyed this content. Please like and subscribe for more. Thanks for watching.

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This does not constitute an investment recommendation. Investing involves risk. Past performance is no guarantee of future results. Consult your financial advisor for what is appropriate for you. Disclosures:

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