Tom Mosley:

The impact of inflation on retirement.

Hey, today we want to talk about how inflation can impact your retirement. Now, for 40 years, even one famous person on television or infamous person on television said we really didn’t know how to spell inflation. But in the past couple of years, we have learned how to spell inflation because we’ve seen prices skyrocket at various times, on lumber, on eggs, on gasoline and houses. And even at a time when interest rates are three or four times higher than they were just two years ago, housing market is booming. People are buying houses, and they’re paying a whole lot more for the house for that. And that’s inflation because you have to pay more money for something.

Inflation is caused, this is going back to my MBA program at Pepperdine, inflation is caused when there’s too many dollars in the system, and they’ve had a lot of benefit programs and a lot of “we’re going to give you this kind of money” from the government, and then too much money chasing too few goods. And we’ve had supply chain issues because of COVID at the time. We’re making this show, this video, this podcast, however you’re listening to it, so you got to understand, we’re just in a season now where we’re going to have it and it could last for a long time. We don’t know.

So if you’re about to retire, and you’ve been planning on X amount of dollars per month getting you by, that’s what we want to talk about. What’s the impact that inflation is going to have on your retirement? The first thing we need to do is we need to define it. And if you’ll notice, I’ve got an S on this for the plural, and I’ve got it underlined to emphasize the fact that there are various kinds of inflation. You can’t just say, “Well, that’s inflation,” and know a number and stick a number.

Now let me show you what I’m talking about. There’s normal inflation. Normal inflation, I think it comes out around the second week of the month every year, and they’ll say, “Last month, inflation was at X.” And so they’ll tell you what inflation was. Now, be careful. Mom always told me, “Figures don’t lie, but liars figure.” And so what you’ll find out is when they come out with those inflation numbers, it’s all run by the party in power. And whatever party’s in power, red, blue, green, whatever, the party in power always wants to make them look good, and it’s not uncommon for them to come out with a number. And then for two months, they can alter that number and adjust it up or adjust it down. So that’s normal inflation. That’s what you’re told is inflation.

Now we’re making this show in 2023, right about the middle of the year, regardless of when you’re watching it. And they’re coming out now and they’re saying, “Inflation is now at 4%, at 5%, and it’s way down.” Well, think about it, okay? There’s also what’s called stacked inflation, and maybe this is a term that I’ve created and I’ve used on our TV show and our radio show, and stacked inflation is the fact that, if we’re up 4.9% this month, but last year, we were up 8.6%, if we go back two years, you’re up 13.5%, because you have to stack what it is this year with what it was last year to go back and say, “Hey, two years ago, we were doing well. But now, things are really, really tight. But inflation is only 4.9%.” But that’s not from where you started. That’s over last year. So last year is added to this year, and they stack the inflation.

There’s one more term, and you’re going to have to decide this one yourself by what you invest in and what you buy, and that’s your inflation. Here’s what I mean by that. It’s not uncommon for people who are retired, especially if they’re in the go-go stage, it’s not uncommon for them to spend a lot of money on trips. And just in the past week, let me see, I have one couple is going to Australia. Another couple is going to Athens. Another couple is going to the Greek Isles. Another couple is going to Iceland. So people are going all over the place. Well, look at what the cost of travel is, compared to what it was two years ago. It’s not up 4%. It’s not up 13%. But cruises and air flights and those kind of things are up in the neighborhood of 30 to 35 to 40%. That’s why I call it your inflation. What are you spending money on? Because you’ve got to consider that, when you really consider the impact of inflation on your retirement.

So it’s important that you don’t just think of inflation as a generic term. There’s the normal year to year inflation. There’s the stacked inflation. And then bringing it home to you, there’s your inflation and what it’s costing you with the rises that we’re seeing in prices across the board and things.

Now, what’s the impact in dollars? Now, let me just show you something here. At 3% inflation, if you need $6,000 a month, and it’s not uncommon for somebody to need $6,000 a month in retirement here in Southern California where I’m making this show, it’s not uncommon for somebody to need that. You say, “I don’t know if we really need that.” Well, what about your mortgage and the cars? Oh, yeah. And then you say, “Well, we only need 5,000.” And I always ask, “Is that before tax or after tax,” and be, oh yeah, that’s after taxes already taken out. So it’s not uncommon for you to need $6,000 a month, or $72,000 a year. That’s a pretty average figure for some people who are retiring in Orange County.

Well, at 3% inflation. Over 20 years, you will need, at just 3% inflation year to year, instead of $72,000, 6,000 a month, you’re going to need $130,000 plus, at just 3% inflation. So inflation is something that you cannot… Now here’s where it impacts you. It impacts you in a lot of ways. Let’s look at that.

That’s $10,837 a month. Instead of 6,000, you need 10,837, when you’re 85 rather than 65, and people say, “well, I won’t spend as much money when I’m 85, as I am now that I’m 65.” Well, tell that to your doctor. Tell that to your medical. Tell that to the people who are building the ramps outside your house that’ll get you in and out and the care that you’re having to bring in. People still spend almost as much, if not as much, in retirement. It’s a lifestyle that you’ve had for 40 years. And usually, I ask people, when they’re in our conference room, I say, “Well, have you ever tried to cut back before?” “Oh yeah, we’ve tried.” And I always say, “How did that work for you?” Very seldom do I have anybody say, “Oh, it was great. We cut back right off the bat.” It’s really hard. Once you get used to a certain amount of income, you find ways to spend it. It’s not impossible, but it’s really hard to change.

So just remember, if you retire and you need $6,000 a month, in 20 years at 3% inflation, you’re going to need $10,837 a month to buy the same amount of stuff at just 3% inflation. So what’s our plan of attack? I always like to give you something positive. Number one, you can understand that social security right now, and they’ve got to change it, they’ve got to improve it to keep it where it is right now, but social security is a pretty good deal right now. Last year, we got, if you’re drawing social security or if you’re not drawing social security, everybody that’s not drawing, you didn’t get the money yet, but your numbers went up 8.7%. So social security is one vehicle that most people have. Not everyone, if you’re a government employee, a school teacher, or some of those occupations, but most people have social security. So you really need to focus on, how can I grow my social security? Not maximize.

Maximization of social security just simply means wait till you’re 70. If you live till you’re 80, you’ll get more money. Anybody can do that calculation. You don’t have to go to a dinner seminar at Mimi’s to find that out. But what time should you turn on your social security? How can I allow my social security to grow? So you need to make sure that you nail down the very best way possible for you to take your social security, because it’s going to be a hedge against inflation.

The other thing you can do is you can create, within your retirement plan, streams of income. Now, there are products and there are things that you can turn on. For instance, if you’re married, let me just give you some examples here, if you’re married, you need a little extra income but you’re not taking your social yet, I met with a couple two days ago who’ve been with us about seven years, retired five years ago, and they’ve not turned on their social security yet, and they said, “We could use a little bit of extra money.” Well, one of them had a lower social security than the other. Always happens in a marriage. And we talked about, you could turn on the lower social security to give yourself a boost. And then later on, whenever you need a little bit more of a boost, one possibility, by 70, you need to do it anyway, turn on the other social security. So there are ways to build streams of income.

A pension is a stream of income. A personal annuity, which is a personal pension. By the way, a lot of people don’t like annuities, but even Congress passed a law two years ago with the Secure Act 2.0, and they’re going to begin to put annuity options back into 401Ks because they realize, now that people don’t have pensions, they don’t have those guaranteed streams of income in retirement. And whoops, their 401K can run out of money. You’ll never run out of money in an annuity. Nobody ever talks about that. When they want to say, well, I hate annuities. Why do you hate annuities? Well, because you don’t sell them is one reason and because they’re not something that you want to present to people. But if an annuity fits for you, it will give you a stream of income that you will never outlive. Even once you run out of your money, you still get paid for it.
You say, how does that work? Well, how does life insurance work? If you buy a life insurance policy, and God forbid, you pass away five months later, you’ve only paid five months of premium, but your family gets $500,000. That’s passing the risk off to an insurance company. So developing streams of income is another way.

And then the plan of attack is it needs to be increasing income. And I’ve talked about that the whole show, increasing because you’re going to need more in the future. So if you have any questions, if you have anything you say, “I’d like to talk to somebody,” we have six all-star fiduciary advisors here with Mosley Wealth Management. And thanks for watching the podcast. Keep watching it. Tell somebody about it. Like it, subscribe to it, do anything you can and pass it along to somebody who needs it. But if we can help you, contact us by the email that you see here, info@mosleywealthmanagement. There’s about 15 ways, I think, to spell my name, but it’s M-O-S-L-E-y, Mosley Wealth Management. Or call us at (714) 421-4288. We will help you in any way we possibly can.