Subscribe
Share
Share
Embed
Welcome to How to Retire on Time, a show that answers your questions about all things retirement, including income, taxes, Social Security, healthcare, and more. This show is an extension of the book How to Retire on Time, which you can grab today on Amazon or by going to www.howtoretireontime.com.
This show is intended for those within 10 years of their target retirement date or for those are are currently retired and are concerned about their ability to stay retired.
Welcome to How to Retire on Time, a show that answers your questions about all things retirement, including income, taxes, Social Security, health care, and more. This show is an extension of the book, How to Retire on Time, which you can grab today on Amazon, or you can go to www.howtoretireontime.com. My name is Mike Decker. I'm the author of the book, How to Retire on Time, but I'm also a licensed financial advisor, insurance agent, and tax professional, which means when it comes to financial topics, we can pretty much talk about it all. Now that said, please remember this is just a show.
Mike:Everything you hear should be considered informational, as in not financial advice. If you want personalized financial advice, then request your wealth analysis from my team at Kedrick today by going to www.yourwealthanalysis.com. With me in the studio today is mister David Fransen. Dave, thanks for being here today. Welcome.
Mike:Yeah. David's gonna be reading your questions, and I'm gonna do my best to answer them. You can send your questions in by either texting them to (913) 363-1234. Again, that number is (913) 363-1234, or you can email them to HeyMike@howtoretireontime.com. Let's begin.
David:Hey, Mike. How do you plan around inflation risk?
Mike:Inflation risks in my opinion, a very real thing in the very near future.
David:Tell us like, some people might not know. Like, I've never heard that term. What's inflation risk?
Mike:Yeah. So let's first define inflation. Inflation is basically your money's less useful. Alright. It's less powerful.
Mike:And we saw inflation over the last couple of years. So I think everyone felt it whether they can articulate it or not. Right. People felt it in their pocketbooks. When you look at inflation, you don't go backwards.
Mike:Like what's happened has happened. And so the trick is you want to basically bridle inflation to be at a healthy rate. Let's say around 2%. That's kinda the targets. The Fed's target rate, is around 2% inflation.
Mike:Fine. No big deal. Right? Most people can handle that. Inflation risk is when things get out of hand.
Mike:So my favorite case study is in the seventies. In the seventies, inflation got out of hand. K? There was credit issues. There was banking issues.
Mike:There was all sorts of issues that basically fear in the economy, things that fuel basically hyperinflation. Mhmm. The fed increased their interest rates to try and stomp it all out, and then inflation started coming back down. And then the Fed lowered rates, but they did it too soon because they were trying to be nice. And then they lowered rates too soon, and then it spiked back up again.
Mike:Mhmm. And it was difficult for the economy, difficult for a lot of people. Fed increases rates again, and it starts to come down another time. This is now mid seventies, mid to late seventies. And then they lowered their rates thinking they solved it, and then it spiked back up again.
Mike:Mhmm. It wasn't until Paul Volker, the cigar smoking chairman, who got up and cranked up interest rates for all of those, you know, you bought your house in the eighties. It was miserable.
David:Mhmm.
Mike:It was miserable with those rates, but you remember it. So Yeah. Because of that, you know, he's like the, American version of the iron lady, you know, Margaret Thatcher, right? For England, but economically for us, he did the hard job. He did what was needed to do to get inflation under control and to keep it under control.
Mike:Well, we might be in a similar situation because at some point, whether you like Doge or not, whether you like Trump or not, whether you like what's going on with our spending or not, whether you agree with our deficit or not, it doesn't matter politically what you think. Economically speaking, there comes a point where any government, when their debt increases, their credit is hurt. And if their credit is hurt or if the deficit gets out of hand or people lose confidence in the American dollar, whatever it might be, there comes to a point where monetary policy or monetary management, the printing of money, quantitative easing, and all of that. There comes to a point where you really can't get out of it very easily, at least. And we saw many case studies of this of Argentina Mhmm.
Mike:When they got way in over their head on, spending and inflation. Zimbabwe is another may you can, like, what is a trillion dollars? Mhmm. Layton, would you look up real quick, what a trillion dollars is in Zimbabwe money or American USD, a trillion dollars in Zimbabwe money. That sounds like a lot of money.
Mike:Right? Yeah. It's funny.
David:You should mention that. Cause I was just watching a, a program, like a documentary program where they were driving around, like, look, I have a trillion dollar bill right here.
Mike:Yeah. So late And that's
David:where they were.
Mike:Late in our our in house producers gonna look that up real quick. But inflation's a very real thing, and you can't control it as much as we wanna feel like we can control everything. There comes to be a tipping point where you can't control things.
David:Mhmm.
Mike:So there are different ways that we can get rid of our inflationary risk. Yeah. Latent $2,600,000,000 is a trillion dollars of Zimbabwe money. Yeah. 2% is it's worthless currency.
Mike:Zimbabwe is not a worthless country, right? Their currency just, I mean, it's not worth what it, what it could have been because inflation got, got ahold of it. So the point being here is inflation very well could be an issue again and again and again, it can rear its ugly head. Now let's kind of talk about ways to solve it. You can cut spending.
Mike:You can cut the deficit. So the deficit, by the way, just means that you spend more than you make. K. That's the deficit. It's not deficit is not debt.
Mike:That's a whole another thing. Yeah. And as of this one, I was reading some very fascinating analysis on our spending. If we could get back to 2019 spending, we're closer to a budget, basically, a more balanced budget. Mhmm.
Mike:And then we can start addressing the debt. Mhmm. But we these are things that need to be addressed because we have something called mandatory spending. Mandatory spending is social security. It's Medicare.
Mike:It's Medicaid. These things that are we have to spend by law. And that's the largest part of our our books. Another way is you could the United States government could issue a ton of debt at current rates that people would be willing to buy for. And by the way, the treasury isn't controlled.
Mike:They auction off the debt. So whatever the market's willing to pay is what they're gonna pay on those rates. Oh, right. The Fed's interest rates that they set, that's overnight lending. That's not what the treasury and offsetting the debt is.
Mike:It's what the market's willing to pay for these these debt instruments Okay. Offered by the treasury. That's often misconstrued. Right. So the government could, in theory, issue a ton of debt, take care of kind of the issue for a temporary period of time, and then allow inflation just to run a mock.
Mike:And they've basically inflated away a lot of our debt because it was issued at a certain rate. It was taken care of. Now the money's worth less and so they can pay it off easier. But it's worse for the American economy. Right?
Mike:So right now we have a president who is trying to act like a CEO of a company as the turnaround CEO. Hey, this isn't working. He's gonna cut spending. He's gonna try and leverage certain assets we have and try and get things in order. And Trump is someone that has used or what some people will say abused, depends on how you view him.
Mike:Mhmm. But he just uses bankruptcy law and other debt laws to his advantage.
David:Mhmm. Right.
Mike:Is he gonna do that? Well, it's different. The government bankruptcy law is not really the same situation. Yeah. So we need to be prepared for potentially more inflation in in the near future as he's trying to sort things out.
Mike:And there's no guarantee that he'll be successful or not. So going back to other conversations we've had about annuities, if all of your assets are locked up into an annuity and you've turned on flat income, and let's say inflation got out of hand for temporary period of time, that's gonna mess you up. Because you have no negotiating power on your income stream. At that point.
David:You get the same year locked into a contract with the comp insurance company. Right. And so you're only getting this much income. It doesn't raise, but yet your money's worth less.
Mike:That 25¢ candy bars now with a buck. How much it costs to buy Snickers? How much it costs to buy eggs?
David:Oh, yeah.
Mike:Now imagine you're doing a $20.12 spending plan with today's prices. Right. That's hard to do. Yep. So inflation is a very real risk.
Mike:How do you combat it? The way you combat inflation is to focus on growth with your overall portfolio. If you have money in the market, whether it's in indexed products that have upside potential or you're in an index or you're in growth stocks or growth investments of any kind, then you're able to help offset inflation.
David:Uh-huh.
Mike:If you go too heavy on cash and cash equivalents, maybe some of the bank products like CDs would be a cash equivalent, or you go into money markets, these lower earning accounts, because you fear that the market will crash. Maybe the market does crash. Maybe you solve that risk, but you're solving one risk or adjusting one risk and completely ignoring another risk.
David:Mhmm. The inflation risk.
Mike:Yeah. All retirees are fighting multiple fronts at the same time, which is why it's so important to have a comprehensive plan. You gotta plan for multiple layers. That's all the time we've got for the show today. If you enjoyed the show, consider subscribing to it wherever you get your podcast.
Mike:Just search for how to retire on time. Discover if your portfolio is built to weather flat market cycles or if you're missing tax minimization opportunities that you may not even know exist. Explore strategies that may be able to help you lower your overall risk while potentially increasing your overall growth and lifestyle flexibility. This is not your ordinary financial analysis. Learn more about Your Wealth Analysis and what it could do for you regardless of your age, asset, or target retirement date.
Mike:Go to www.yourwealthanalysis.com today to learn more and get started.