So recently we were contacted by US NEWS and World Report regarding the insidious (SAT word...Shea?) nature of inflation on folks 55+, Restylees in WMGNA vernacular, investments and future purchasing power. As we are delving into Q3 Investment Reports for our members, it occurred to me that we view things with an after inflation/after tax lens and have been doing so for 22+years!! As if there really is any other way to look at money…it’s a means to an end…how much goods and services can I buy now and into the future always of paramount concern…purchasing power!! See, a membership with WMGNA includes everything tax related up to and including return preparation and filing done by and with our CPA strategic partners, all the while 168/24/7 the team is figuring how to arrange affairs to pay the least amount to the Treasury!
We refer to inflation as the black hole of finances…once you realize you are losing purchasing power…it’s too late to react. And inflation like all politics is local…meaning each household has its own distinct cost of living…and corresponding increases (rare occasion decreases)…again based upon what and how much good and services are consumed…or will be..ie health care costs vis a vis healthy vs unhealthy restlyees…travel…dining out…gas prices and driving habits...are examples of some other variances. Social Security is another example of miscalculating the impact of inflation…we believe that counting on Uncle Sam…hey he’s not really your Uncle!!..or your employer to make sure you keep pace with inflation can be a dicey proposition at best! As evidenced by the 2016 0% and 2017 0.3% respective Social Security increases. There is not a person we know whose cost have not been well in excess of 0 and 0.3 the last two years!
The first step in solving a problem is recognizing there is one! If we use a 4% rate of inflation a Restylee’s income will need to double every 18 years. (Not a SAT Math problem) So let’s say you decide to Restyle at 63…I still got at least 10 good one’s in me! And you need $10,000/month spendable, in order to keep pace with inflation at age 81 your $10k will need to be $20k! just to maintain purchasing power!…I got the power! Watch out for the pitches of future guaranteed income such “give me $100,000 Mrs. 50 year old and at age 65 worst case(which in reality usually is best case) we will guarantee you the ability to withdraw $10,000/year for life, what that really means is that in today’s dollars is $5,494 and if you are still kicking at 83 it will be worth $2,747/year….not exactly increasing your purchasing power. The concept of future value goes hand in hand with the “when should I take my Social Security?” Say age 65 is your “full retirement age”(no reduction of benefits) every year you delay taking SS until age 70(actually every month it increases .66%) your benefit goes up 8% on top of any cost of living increases—which is a 6.75% compounded rate of return NOT INCLUDING ANY COST OF LIVING INCREASES! Now of course when you are getting all-inclusive tax and wealth management advise, the decision on when to begin receiving Social Security has far more consideration and moving parts then just the compounded guaranteed rate of return Uncle Sam gives you! Are you having this conversation and considering inflation on the regular with your tax and investment folks? Do you know the after tax-after inflation rate of return range you need to make things happen? If not then the good folks you are working with either Don’t know or Don’t Care…and as the late great Tom Petty said…”you better watch your step”. Hope you enjoyed! Keep the faith!