Helpful miscellaneous articles
regarding our retirement plan and planning.
Like you, I review my retirement nestegg and plan from time to
time. Recently, I went though some
continued education for some credentials I maintain and it occurred to me that
we all could use a review about these issues.
So with your help, we will share and post articles and info that may be
helpful and of interest to many of you in this section.
Inflation Is Back. Here’s What It Could Mean
For Retirees
Nov 15, 2021,04:02pm EST
I cover retirement strategies to help
you plan your financial future.
How
much income does it take to live comfortably in retirement? The answer to this
question has remained much the same over the past 10 years, but the recent
spike in inflation may have you rethinking the answer.
As I
see it, 2021’s burst of inflation is the temporary byproduct of the
post-pandemic recovery. I don’t see inflation staying high, but I
also don’t foresee it returning to historic lows given major federal spending
on social programs and a continuing home shortage. For the next few years, I
predict the U.S. will be looking at higher baseline inflation than we have seen
in the last 10 years. The Federal Reserve has hinted that it will continue
tapering its debt purchases throughout this year.
If you
created your financial plan within the last 10 years, a rise in inflation may
necessitate reviewing and resetting your strategy and tactics. Retirees will
have fewer options than full-time workers to react to changing scenarios;
however, there are some modifications nearly everyone can make.
For
example, transferring cash to a high yield savings account can help preserve
its value. On Bestrates.com you can get .55%, although this still does not keep
up with inflation it is better than most traditional banks. It’s best to shop
around so you aren’t sacrificing liquidity, especially if the cash is earmarked
for emergencies or short-term living expenses.
I’ve
cautioned my retired clients about chasing yield in a low interest rate
environment. Many of them will be inclined to jump headfirst into bonds as
interest rates and yields rise, but in my opinion, the potential returns of
bonds and bond funds won’t justify the risk.
I
believe dividend-paying stocks offer a more suitable risk/reward profile for
income investors. Retirees may want to consider the stocks of larger companies
with a solid track record of performance and a history of rising dividends. If
rising rates fuel a stock market decline and contribute to volatility,
dividends should be able to mitigate both outcomes.
Retirees
can use rising dividends to give themselves a raise periodically. It’s a simple
tactic that can help offset reductions in purchasing power. The concept of
giving yourself a raise may seem novel, but it’s not that different from
getting a cost-of-living adjustment in your Social Security benefit. By the way, the 2022 cost-of-living adjustment is predicted to
be in the range of 5.5% to 6.2%, which would represent the biggest increase in
decades.
Inflation
can be a positive force if you own your own home and plan to age in place. If
you want to tap your home equity, for example, the property may qualify for a
larger HELOC or reverse mortgage. If you were planning retire to another location—such
as Utah or Arizona— with less density but good amenities, you may not be so
lucky. The price of homes in many of these areas has increased by
double digits given new opportunities for remote work.
Whenever
the subject turns to inflation, investors wonder if they should buy gold. Gold
is often touted as a good inflation hedge, but its price is actually quite
volatile. In my experience, making money in precious metals requires getting in
and out of the market at exactly the right time, every time. The experts will
tell that it’s not possible to time the market consistently no matter how smart
or lucky you are. Furthermore, gold doesn’t always live up to its hype especially
when inflation is moderate. It’s returned an average of 5.2% per year between
March 1990 and March 2021. Over that same time period, the S&P gained 10.4%
on an annualized basis with dividends reinvested[LS1] .
Rather
than worry about increasing prices, prepare for them by reviewing your
financial plan with an eye toward protecting your purchasing power. If your
dollars are worth less in the future, you’ll need more of them to maintain your
chosen lifestyle. Keeping up with inflation can be challenging, but you can
anticipate its impact and take action to adopt appropriate tactics for
long-term savings and retirement income.
(As with any of these informative articles,
anyone who needs someone to talk to about
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