On The Money Latest Investing Posts
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Question: I’ve been thinking about retiring for a few years now but I’m really concerned about how expensive everything is. I’m still working and wondering if I’ll ever have enough to retire. How do you help people cope with high inflation? Phillip, CT
Answer: I help my private clients cope with inflation by suggesting they generally maintain no less than 40% (but no more than 60%) of their stock investments in a diversified portfolio of low cost index funds, exchange-traded funds, or enhanced index funds.
Right now the media is harping on the high price of gas and food again. In prior years it was the high cost of housing and a college education. In the future what they harp on is anyone’s guess. The bottom line is this – stuff you buy today is going to cost more tomorrow and the year after that and the year after that. It’s not a surprise and you’ve got to plan for it and adjust your strategy periodically.
The challenge for retirees is to not run out of money while creating a stream of income that is predictable, sustainable and increasing to keep pace with or outpace inflation. Even at a low inflation rate of say 3%, you’d need to double your income in about 20 years just to maintain the same standard of living you have today. Past performance is no guarantee of future results, but as of now, the equity markets have been the only place that has consistently delivered returns above inflation over long periods of time. That’s why it’s so important to maintain at least some portion of your money in the equity (stock) market. Of course when you have 40%-60% of your money in the stock market, you’ll be subject to market risks too.
Bill’s Bottom-line: It’s not rocket science. The less you take out, the lower inflation is, and the higher return you earn on your money, the longer it will last. Conversely, the more money you take out, the higher inflation is, and the lower your return is, the shorter your nest egg will last.
Bill Losey, CFP®, CSA, America's Retirement Strategist®, is the resident retirement planning expert for CNBC's "On the Money". He coaches women and couples nationwide with their retirement planning and investment portfolios. Bill is the author of Retire in a Weekend! The Baby Boomer’s Guide to Making Work Optional and he also publishes Retirement Intelligence, a free weekly award-winning newsletter. He can be reached online at www.MyRetirementSuccess.com.
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