The Biggest Misconception In Retirement

As I write this blog in February 2023, the last 14 months have given us a master class on how inflation can affect retirement planning and your purchasing power in general. Probably the biggest misconception I see when talking to retirees or soon to be retirees is that they worry about losing their "money" in retirement but they don't worry about losing their purchasing power.

Money is a form of currency that gives you purchasing power. If your money isn't growing then you are losing your purchasing power to inflation. It's that simple.

I often hear statements like "We can't afford to invest our money in retirement because we can't afford to lose it."

To which my question is this:

Are you certain that your retirement money today will buy your favorite box of cereal 30 years from now?

Don't get me wrong. I hope you're right, but it might do you some good to spend an hour with me or somebody projecting your probable living costs and probable income over the next 30 years because statistically speaking, that's how long you, your spouse or both of you will likely live in retirement.

What I see way too often is that people do not mentally account for the compounding effect of inflation over a retirement that will last 20 to 30 years.

Here's a quick example:

Just based on the historical inflation rate of 3% annually a box of cereal that costs $4 today will cost $9 in 30 years.

If your money isn't growing at a rate of 3% or more on average then you are losing your money whether you realize it or not.

If your retirement money is in cash, CD's, bonds, pensions, etc. inflation will overwhelm your purchasing power at some point during those 30 years. This isn't a matter of if but when.

Don't worry. It's a common misconception and one most of us default to. We assume that the biggest issue in retirement is losing our "money" or our principal dollar amount. However, the biggest issue in retirement is losing our purchasing power. There is a huge difference between those two things.

The problem we need to solve is:

How do we invest our retirement money so we create an income that rises more than inflation for the next 30 years?

Retirement will last 20-30 years and during that time your living costs will double. What's your plan to double your income during that time? If you don't have an answer to that question, I would be happy to set aside an hour to help you examine your unique financial situation.

In conclusion, I'm not saying your income isn't enough today when a box of Captain Crunch costs around $4. I'm asking, have you made a plan to afford that same box of Captain Crunch when it costs $9 in 30 years?

You need a plan

At 80/20 Financial Services, we are retirement planners. We believe a goal of retiring - without a plan to increase your income during retirement- is simply a plan to run out of money. Retirement planning is a strategy to maintain and increase that dollar amount over time.

If you're age 50 or over and still in the accumulation phase (pre-retirement) we can help you figure out where you need to go and how to get there. If you are retired or nearing retirement, we can create a plan which will outpace inflation and increase your income over time. The consultation is free and without obligation. Contact us to set up a consultation.

Our mission is to increase your time, money and peace of mind by helping you create retirement income and investment strategies that align with your retirement goals and then guide you through the completion of those strategies year after year.

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Thanks for reading!

Brian Coleman-Owner/Advisor

80/20 Financial Services is an Independent Registered Investment Advisor (RIA) registered in the state of Missouri (CRD# 300772). Being independent allows us to work exclusively for YOU.

*80/20 Financial Services is the legal name of our Registered Investment Advisory Firm (RIA). Electric Cooperative Retirement Planning is what we do.

*There are different types of "financial advisors". We recommend you work with an Registered Investment Advisor (RIA). It doesn't have to be us.

Our specialty is retirement planning for electric cooperative employees within 5 years of retirement or already retired.

*We will also work with the families of cooperative employees.

Our mission is to make sure you are prepared for a retirement that will last 20-30 years.