Inflation is one of the biggest eroding factors for your money. It can destroy any retirement plan if it is not addressed early in the planning process. Make no mistake about it, when you combine market losses with inflation, you have a toxic mix.

As you get older and near retirement, you become more vulnerable to inflation. However, the effects of inflation over a lifetime can be devastating for anyone. When you consider that the average 50-year-old American man has been subject to an average inflation rate of more than 4% during his lifetime, that means $1,000,000 in an account would be spent as $134,111 when they were born. That’s a total loss of $865,889 due to inflation!

You’ve probably noticed that your regular trip to the grocery store is costing you more lately, how much will it cost you when you retire? Perhaps he has already retired and is affected by other costs such as drugs. Perhaps you have children in college and are honored by the increase in tuition costs. The fact is that we are all affected by inflation, you can’t see it, but you can feel it in your wallet.

If you’ve lost money in the stock market, you’re doubly hit. While some investors think that rising stock prices are a hedge against inflation, this is wishful thinking. During inflationary periods, companies raise prices to maintain their profit margins. When commodity costs increase, trading costs increase, which increases borrowing costs, and future earnings will be worth less. In a falling stock market, not only can you lose money, but your money will be worth less due to inflation.

According to a study by Ned Davis Research, since 1952, the S&P 500 has gained 0.2% on average in the year following the growth of the Consumer Price Index by at least one percentage point more than its five-year moving average. Currently, the CPI is beating its five-year average by 1.4 percentage points. For the year 2008, until October, the average inflation rate is 9.38%. That’s the highest it’s been since 1981.

In 1971, President Nixon took us off the gold standard. Our dollar is no longer backed by gold and the US Treasury now prints money at will. We now have Federal Reserve Notes instead of gold-backed dollars. When the Treasury prints money with nothing to back it up, our debt increases and our purchasing power decreases, causing inflation. You can learn more about the Federal Reserve and our Treasury in the book, The Jekyll Island Creature.

What does all this mean to you? First, your dollar is worth less and you won’t buy as much as you did last year. What can you do to protect yourself from inflation? I’ve put together 7 simple tips you can use today to start fighting inflation and building more disposable income in retirement.

7 tips to fight inflation

1. Keep your money moving – this does NOT mean constantly buying and selling. It just means that a stagnant dollar can erode faster. An example of keeping your money moving would be removing interest or dividends from your investments. By doing so and investing in tax-advantaged vehicles, you can also fight taxes.
2. Invest in assets and reduce your liabilities – this may sound simple, but it is often overlooked. You must first understand the difference between assets and liabilities. An asset increases in value or provides income in the form of dividends or cash flow. Liabilities not only take money out of your pocket, but they can also put you at risk. It is important that you review your liabilities at least once a year to see if you can reduce them.
3. Save 15% or more – If you consistently save 15% or more of your gross income, you will be able to retire more comfortably. If you’re already retired, you need to find a way to live off your assets, so it would be wise to spend less than 5%.
4. pay income taxes now – always consult your tax advisor before making tax decisions. Although you may have been advised to defer taxes, this could backfire if tax rates increase in the future. A look at tax history shows us that income taxes are near all-time lows today. When you consider our current economic situation, where will taxes be in the future? Deferring taxes only postpones the pain, if you can get an equivalent return, why postpone it?
5. Consider a fixed annuity with a lifetime income rider – depending on where you are in life, an annuity can provide you with many benefits. One of the biggest is a guaranteed income that you can never outlive. Annuities also provide creditor protection in some states and tax advantages. Indexed annuities can also provide upward earnings with a floor to protect your principle from loss.
6. Take a look at long-term care – With medical costs continuing to rise, long-term care insurance can save a family from complete financial collapse due to illness or injury. Long-term care provides protection when you are most likely to need it, during retirement. Without some form of protection, medical costs can quickly deplete a nest.
7. Buy Permanent Life Insurance – You may have been told to “buy term and invest the difference” but this has proven over time to be a losing strategy. If you followed that advice twenty years ago, when you were 40, and now you’re 60, then your term insurance would probably be maturing and your market investments would probably have lost value. Whole life insurance provides living benefits while fighting inflation and providing a permanent death benefit.

One of the biggest fears of retirees is running out of money. By following this advice, you can prevent this from happening, protect your money from predators, and maintain liquidity.

Start saving now, you will need it later,

barry page

Financial Consultant Shield

Legacy Insurance Agency, PLLC