Show Notes
Inflation will affect your retirement one way or another. It’s up to you to create a strategy to manage that risk. On this episode of Retirement Answer Man, you’ll learn how you can build your own strategy to deal with the creeping risk of inflation.
In the past two episodes, you learned
what inflation is and
how it can affect your retirement. Next week you’ll learn how to use tactics to tweak your strategy to optimize it for specific situations, but first, let’s go learn how to come up with your own plan to combat inflation. Data vs noise
It is important to understand the difference between noise and signals when coming up with a strategy. It’s easy to be distracted by the everyday noise that surrounds us and fail to heed the signals that we should actually be watching for.
In today’s overly connected world, we have access to information that is being transmitted instantly. Rather than learning from the signals that can help us create a course of action, we get distracted by the constant noise. As data flow increases, we tend to get overloaded with information.
According to Nassim Taleb in his book,
Antifragile, data is toxic in large and even moderate quantities because it increases our tendency to overreact to the noise. This is an important factor to recognize when coming up with a risk management strategy which is what a retirement plan really is. Strategies start with vision
Coming up with a strategy for retirement planning is like checking a recipe before you go to the grocery store. You want to make sure that you have all the ingredients so that you can put them together in the correct portions to create a meal. If you don’t plan before your trip to the supermarket you could come home with plenty of food but nothing that will help you prepare a healthy meal. To ensure a healthy retirement, make sure that your retirement starts with your vision for life. How to create a strategy to manage inflation
Now you understand that you need to have a goal in mind before you create a retirement strategy. The two risks that you must balance in retirement are sequence of return risk and inflation risk. Sequence of return risk is a near-term risk that occurs when your stocks go down in value shortly after you begin withdrawing from your accounts. The risk of inflation means that the value of your dollar decreases over a longer period of time.
Your retirement strategy needs to balance these near-term and long-term risks. Listen in to hear how you can manage inflation risk while at the same time considering sequence of return risk.
If some of the terminology I use confuses you, make sure to listen in the month of March. I plan to explain the fundamentals of retirement planning in greater detail. You’ll learn about the pie cake, agile retirement planning, and the retirement plan of record. OUTLINE OF THIS EPISODE OF THE RETIREMENT ANSWER MAN PRACTICAL PLANNING SEGMENT
- [3:29] Noise vs. signals
- [5:35] What is a strategy?
- [12:57] How to create a strategy to manage inflation
LEARNING FROM DONALD’S SITUATION
- [20:40] Learning from Donald’s retirement plans
- [25:46] What happened to Donald’s wife
- [29:15] How Donald’s perspective has changed
- [33:08] How Donald’s financial plans have changed
- [35:20] Use the technology you have to record your loved ones
TODAY’S SMART SPRINT SEGMENT
- [36:47] Evaluate your reaction to inflation
What is Retirement Answer Man?
A top retirement podcast. Roger Whitney, CFP®, CIMA®, CPWA®, RMA, guides you on how to actually do retirement well financially and personally. This retirement podcast isn't afraid to talk about the softer side of retirement. It will teach you how to retire with confidence. Two-time PLUTUS winner for best retirement podcast / blog and the 2019 winner for best financial planner blog. This retirement podcast covers how to create a paycheck, medicare, healthcare, Social Security, tax management in retirement as well as retirement travel and other non-financial issues you'll need to address to rock retirement. Retirement isn’t an age OR a financial number. It’s finding that balance between living well today and feeling confident about your retirement. It’s about gaining more freedom to pursue the life you want. Join the rock retirement community at www.rogerwhitney.com