IS YOUR RETIREMENT PLAN KEEPING UP WITH INFLATION?
By Chris Ward, CFP® | Founder, EntryPoint Wealth – Cincinnati, Ohio
WHAT TODAY'S INFLATION NUMBERS MEAN FOR INVESTORS APPROACHING RETIREMENT
Inflation has a way of becoming invisible.
We notice it when we fill up the gas tank, pay a restaurant bill, renew our insurance, or buy groceries. But when we’re thinking about retirement, it’s easy to focus on how much we’ve saved today and forget about what that money will actually buy 10, 20, or 30 years from now.
That’s why today’s inflation report caught my attention.
The Producer Price Index (PPI), which measures the prices producers receive for goods and services, increased 5.4% over the past year. While one month’s economic report shouldn’t drive investment decisions, it is an important reminder that inflation remains a risk investors need to consider—especially those preparing for retirement.
A DOLLAR TODAY WON'T BUY THE SAME AMOUNT TOMORROW
Consider a simple example.
If you spend $100,000 a year today and inflation averages 3% over the next 20 years, maintaining that same lifestyle would require roughly $181,000 per year.
At 4% inflation, you would need approximately $219,000 per year.
That’s the power of compounding inflation.
And unlike a stock market decline, inflation doesn’t show up on your investment statement as a large negative number. Instead, it quietly reduces the purchasing power of your money over time.
That can be particularly important in retirement because your ability to increase your income may be limited.
Someone who is still working may be able to respond to higher prices by earning more, working longer, or changing jobs.
A retiree generally doesn’t have those same options.
RETIREMENT MAY LAST A LOT LONGER THAN YOU THINK
One of the things I encourage clients to consider is that retirement isn’t a 10-year investment horizon.
Someone retiring at 65 could easily spend 20, 25, or even 30 years in retirement.
That means inflation isn’t simply a concern for the first few years after you stop working. It can affect your financial plan for decades.
A retirement portfolio therefore needs to do more than simply provide income today.
It needs to have a reasonable opportunity to maintain your purchasing power over time.
That’s where retirement planning becomes more complicated than simply asking, “How much money do I need to retire?”
Staying ahead of inflation doesn’t mean taking excessive risk.
THIS IS AN IMPORTANT DISTINCTION.
When investors hear that inflation is running higher, the natural reaction can be to think they need to take more investment risk to generate higher returns.
I don’t believe that’s the right way to look at it.
Taking too much risk—particularly as you approach or enter retirement—can create another serious problem.
Instead, I believe investors should think about what each portion of their portfolio is designed to accomplish.
Some assets may be positioned for near-term income and stability.
Other assets may need to provide long-term growth and help protect purchasing power.
The goal isn’t necessarily to maximize returns.
The goal is to build a financial plan that gives you a reasonable opportunity to support the lifestyle you want throughout retirement.
Inflation planning should begin before retirement.
This is one reason I believe retirement planning should start well before your last day of work.
If you’re five or ten years from retirement, you still have time to make adjustments.
For example:
How much will you actually need to spend?
Your retirement budget shouldn't assume that every expense will increase at the same rate. Healthcare, insurance, property taxes, travel, and other expenses can behave very differently over time.
How will Social Security fit into your plan?
The timing of Social Security can have a significant impact on your lifetime income. It’s important to look at the decision as part of your overall retirement strategy rather than as a stand-alone decision.
How much of your portfolio needs to continue growing?
Not every dollar has the same job. Money you’ll need in the next few years may need to be managed differently from money you may not need for 10, 20, or more years.
What will taxes look like?
Your gross retirement income isn’t necessarily the amount you get to spend. Tax-efficient withdrawals, Roth conversions, charitable strategies, and the timing of different income sources can all affect how much of your money remains available to you.
The question isn't whether inflation will disappear.
Today’s 5.4% PPI increase may eventually prove to be short-lived. Energy prices can fall, supply conditions can improve, and the US-Iran conflict will be resolved, leading inflation to move lower.
These trends should impact how your portfolio is allocated. Implementing careful portfolio design and tactical investment strategy is a hallmark of EntryPoint’s portfolio management approach.
But today’s number provides a useful reminder:
Inflation doesn’t have to be extremely high to have a meaningful impact on your retirement.
IF YOU'RE APPROACHING RETIREMENT, THE QUESTION SHOULDN'T SIMPLY BE:
“Do I have enough money to retire today?”
A better question is:
“Will my assets and income continue to support the life I want 10, 20, and 30 years from now?”
That’s a much more difficult question—and, in my opinion, a much more important one.
At EntryPoint Wealth Management, I believe retirement planning should be about more than determining whether you have enough money to stop working. It’s about understanding what you want your retirement to look like and implementing investing and income tax strategies to help you achieve your best retirement lifestyle.
Because retirement isn't just about having enough money for today.
It’s about making sure your money can continue to work for you tomorrow.
Inflation can have a meaningful impact on your retirement—even when it isn’t making headlines. Working with a CFP® professional can help you build a retirement strategy designed to account for rising costs, manage investment risk, and provide income that supports your lifestyle over the long term. At EntryPoint Wealth Management, we help individuals and families plan not just for the day they retire, but for the decades that follow. Reach out to me or schedule a strategy session to take the next step toward a retirement built to last.
CHRIS WARD, CFP®
Chris has been helping clients as a Financial Advisor since 2007 and established EntryPoint Wealth Management as an opportunity to offer clients access to his best partnership for financial advice. He works as an integrated partner with you and your financial life, to help you better your financial situation and achieve your goals.
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