Inflation: The Hidden Monster
About the author: Curtis has earned the Life and Health Insurance licensure, has passed the Series 66 examination, and has earned a degree from the University of Nevada, Reno. He has over 16 years of experience in the financial industry, helping others protect, grow and manage their wealth. Curtis helps clients create customized strategies for their portfolio based on their unique financial goals.
Inflation: the Hidden Monster
If that picture doesn’t strike terror and fear into your heart, I don’t know what will. Well, maybe I do; it’s a simple silent thing that affects us all: inflation. It is one thing many of us don’t think about as we live our daily lives. Every week we go to the grocery store, every two weeks we may fill up our gas tanks, and over time little by little the silent and insidious monster of inflation is always present there even though we may not see it. It is something that happens so gradually and quietly it is often forgotten about, but do not make that mistake when it comes to your finances.
The average price for a loaf of bread in 1990 was about $0.75, and in 2000 it was about $1.99. This week I went to buy a loaf of bread and it cost me $3.00 before taxes. The average gas price in 2000 was about $1.50 and today we regularly see gas prices over $4.00. With those examples, I am sure you have noticed this happen, but did you budget for this? Did you have a plan to tackle inflation, or did you just make a mental note and move on. Raise your hand if you are like me and it was the latter.
That was just looking at a couple of household examples; when you look at something like health care, this can change. Medical costs are estimated to rise 6% in 2020- that is more than what we see with common goods. Inflation can be confusing as we have what we see with our own two eyes; we have the Federal Consumer Price Index, and we have health care, housing etc. Now, the key to this is not to be afraid of it but have in place a plan that looks at inflation. Historically, inflation has been approximately around 3.12% over the last 10 or so years, so it is important when looking at your finances you are accounting for inflation.
Accounting for inflation is paramount for retirees and pre-retirees to take into consideration. Retirement is a mixture of needs and wants, and not accounting for inflation can create a large monster 20 years after you initially retire. Retirement is essentially unemployment for 20 to 40 years, so you need to make sure that your assets are able to keep up with your needs and wants. If you are looking to spend $5,000 a month in retirement, do not forget to account for inflation because that $5,000 a month initially at retirement is the equivalent of $6,720 a month 10 years later when factoring the 3% inflation.
The monster of inflation is something that can be accounted for, it can be planned for, and it is important that we do so. It is one thing to have a plan on paper that looks great without taking inflation into consideration, and another to have reality hit where the inflation monster jumps out of the closet 10 years into retirement and eats that paper. I never did try the excuse in school of telling my teachers that the dog ate my homework, so don’t let the monster of inflation eat up your plan by not accounting for it.