A Cheeseburger Used to Cost How Much?

Written By: Shawn Perkins, CFP®, AWMA

It was around this time last year that we hit peak inflation.  In June 2022, the inflation reading came in at 9.1%, and has since retreated to its current level of 4% as of May 2023. We all felt the effects then and continue to do so now.  In some areas of goods and services, inflation has leveled off which is a welcome relief.  However, in other areas, it appears to be sticking around longer than expected.  Housing costs, which account for nearly a third of the Consumer Price Index (CPI) has continued to increase.  Inflation risk is not new to retirement planners, but it has been a silent risk for quite some time.  Now that it is front and center, it has many clients wondering how this is going to impact them and their retirement goals.  

According to an article in USA Today last month, a survey found that retirees are “unretiring” and moving back into the workforce.  53% of these survey respondents cited needing more money as their driver for finding a job, while 43% cite inflation as their reasoning.  While I’m certainly empathetic to how these folks are feeling, I would be interested to see how many of these respondents had a financial plan in place before retiring, or at least had engaged a financial planner.  Inflation risk is often underestimated in retirement planning compared to the crowd of other risks that can otherwise derail a solid financial plan.  However, a robust plan should factor in an inflation assumption as a cost or return adjustment to forecast how your plan will respond.  Without it, the expenses that you incur today will not be adjusted decades from now (a hamburger in 1973 cost on average 65 cents) or your rate of return on your investments will need to be higher to account for the inflation discount.  The risk exists and will continue to do so.  So how do we combat it?

Your main inflation beater will be your market investments.  In the short term, inflation could be higher than investment returns.  We all learned that firsthand in 2022.  However, over the long term, market growth beats out inflation growth.  It is imperative that retirees have a healthy exposure to growth to beat out inflation, particularly as our life expectancy continues to become longer.  Another way to help fight off inflation is through budgeting.  This will help you understand where your money is going and prioritize your cash flow.  There may be areas in your spending that can be reduced or cut entirely.  It may make sense to delay that vacation or your bathroom remodel until next year because the price is too high.  Having a realistic budget or just tracking expenses in general can go a long way in the longevity of a retirement plan.  And lastly, returning to work in retirement isn’t necessarily a bad thing.  It can help provide income that otherwise would have needed to come from investment assets which allows those assets time to recover and grow.  In addition, working in retirement may provide the social interaction and activity that you may have lost from your previous employer while giving you a little extra spending money at the same time.  

Ultimately, inflation, like the up and down swings in the market, is out of our control.  The main thing we can do is plan for and adjust to it as needed through a comprehensive retirement income plan.  Through these conversations, we can put together a strategy to put in you the best possible position for success in your retirement.

Say What?

Pickleball is said to be the fastest-growing sport in the U.S. with attendance increasing by 113 percent from 2020 to 2022. But with the increase in popularity comes an increase in injuries. Here are the projections for this year:

  • 67,000 ER visits
  • 4,700 hospitalizations
  • $377 million in medical expenses
  • 90 percent of these injuries/expenses affect people age 50 and older

This week in history

1802 – West Point Military Academy is in Orange County, New York. Originally the United States Military Academy was the U.S. Corps of Engineers training school, but it was made the U.S.M.A. by Congress on March 16th, 1802. It was officially opened as such on July 4th, 1802.

1959 – A 49th star is added to the American flag to represent the new state of Alaska.

1960 – A 50th star is added to the American flag to represent the new state of Hawaii.

1976 – Women are enrolled into the United States Military Academy at West Point for the first time.

1981 – Arizona Judge Sandra Day O’Connor is nominated by President Ronald Reagan to become the first female justice on the U.S. Supreme Court.

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