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Facing Inflation

Facing Inflation

| June 10, 2024

Everything is so expensive! Can I still retire?

For most of the last 30 years, we Americans have lived in a bubble where no one really understood first-hand what inflation was. There were a couple years from 1991-2020 that the cost of living increased by over 4%, but for most of these years the cost of living only went up in small increments. As advisors helping people retire, this was a looming risk that we saw most people not take seriously.

We took the time to explain how $100 at the grocery store over a 10, 20, or 30-year retirement would buy less and less each year. It was important to hedge this risk in order to not have to put something back on the shelf in later years because you are on a fixed income and couldn’t afford it.

Well, here we are! Average annual food “at home” prices were 5% higher in 2023 than in 2022. This followed a previous increase of 11.4% in 2022. 1.

Let’s put this in perspective: Imagine you retired at the end of 2021 with a $100 weekly budget for groceries. By the end of 2022, your $100 would only buy $88.90 of goods it bought when you retired, and by the end of 2023, it would only buy $84.46 of the goods you bought when you retired. You are only 2 years into retirement. What did you have to put back on the shelf - or where did you find the extra $15.55 to cover your shortfall?

That’s one scary realization that leads to even more concern: if the cost-of-living increase for food remains at 5% each year, that $100 will only be worth $56.03 just 10 years into retirement.

No wonder Americans are asking, Can I still retire?

Perhaps the question they need to be asking, though, is How can I still retire? It is possible for many of the families we have begun working with over the last couple of years, but…

The answer to that question needs to be addressed ASAP! Time is money. That much is obvious. The longer you delay planning for retirement and inflation persists, the harder it could be to retire, stay retired… and stay successfully retired.

Here are some things to talk with your advisor about as you build your plan:

  1. Am I sitting on too much cash?
  2. Am I saving enough?
  3. How much of my income will be fixed and not be able to keep up with inflation?
  4. What if taxes go up?
  5. What if Social Security changes?
  6. How do I plan for increasing healthcare costs or leaving my spouse in a bind if I get sick and need to use retirement monies/funding?
  7. What if one of us dies early/unexpectedly?
  8. How long do we plan for?
  9. Can my kids put my retirement in jeopardy?
  10. Am I putting my retirement at risk in any way? For example, am I mentally budgeting my dollars or ignoring certain risks to my plan?
  11. How do I optimize every dollar I have for my lifestyle—today and later in life?
  12. What is the back-up plan?

I saw a meme with the headline…Coming soon from inflation… a Two Dollar Tree storefront. Funny, but true. Can you actually buy anything for $1 anymore? There is a lesson buried in this. The risk inflation puts on your retirement is real. The longer you ignore it or procrastinate planning for it, the less options you will have to fight it. There is still hope for a successful retirement, but it starts right here and right now… with you.

 

1. https://www.ers.usda.gov/data-products/ag-and-food-statistics-charting-the-essentials/food-prices-and-spending/