Eric: Good morning, David, and thank you for joining us today.
David: Good morning.
Eric: We've seen an unprecedented rise in inflation and rising prices everywhere; how is this affecting our retirees?
David: The impact of rising inflation on retirees should not be underestimated. As they often rely on fixed incomes, the rising cost of goods means that their purchasing power diminishes over time. Consequently, they may find themselves unable to afford the same standard of living they once enjoyed. For example, for someone who retired in 1970, the cumulative inflation rate in that decade was over 100%, and by the end of the 70s, this retiree could only afford half the goods and services he or she could buy when he or she retired. So, this significant decline in purchasing power highlights the need for retirees to have a solid plan to manage the impact of inflation on their finances.
Eric: What can retirees do to manage the risk of inflation?
David: As you approach retirement, it's important to have some sort of plan in place to protect your finances from the impact of inflation. There is something you can do to achieve this, and here are three suggestions that might be helpful. Firstly, you should consider shifting some of your assets into cash flow-producing assets that are correlated with inflation. A good choice would be real estate, which can be an excellent asset for your retirement portfolio. Rental income tends to rise in line with inflation, so you can potentially benefit from higher income as rents increase. It's like planting a tree that grows and protects your portfolio with greater shade from the sun's heat. Infrastructure investments work similarly, offering a steady stream of income that tends to rise with inflation. This can help keep your income in line with your expenses as the cost of living rises over time. Another option is to invest in companies with increasing dividends. These are companies that steadily increase their earnings and dividends, offering a cash flow that increases with inflation over time.
Of course, it's important to work with a financial advisor to make sure you have the right mix of assets to meet your needs. He or she can help you develop a personalized plan that takes into account your financial goals, risk tolerance, and investment time horizon. By taking these measures, you will help ensure that your retirement is as comfortable and secure as possible.
Eric: What should retirees do now?
David: To make sure your retirement plan is as solid as possible; my recommendation is to review inflation forecasts as carefully as possible with a financial advisor. He or she can help you determine if you have the right mix of cash flow-producing assets that will increase with inflation, which can help you protect your quality of life over time. It's like having a thermostat in your home that automatically adjusts to the temperature to keep you comfortable no matter how hot or cold it is outside. By making sure your retirement plan includes inflation-correlated assets, you will help ensure that your income stays in line with your expenses, no matter how much the cost-of-living raises. Your advisor can work with you to develop a customized plan that takes into account your individual needs and goals so you can enjoy a comfortable and secure retirement.
Eric: David, thank you for sharing this information and for your time today.
David: Thank you.
