Let’s talk about inflation. Besides taxes, it is probably one of the most critical components to consider when developing any type of strategy. Yet, it is woefully unaddressed in most retirement plans, because it can be difficult to conceptualize. So let me start by asking you a few questions.
1.) Do You Think Inflation Will Be Lower or Higher in the Future? In other words, do you think that inflationary trends will allow you to buy more with a dollar (go down) or less with that same dollar (go up)?
If we could go back 100 years from 1914-2014, that number rises to a staggering 2239.2%! We can do all kinds of calculations of inflationary trends over various time periods, but the real concern is are we prepared if the trend moves out of our favor and erodes our purchasing power?
The real concern is what a positive inflationary trend will do to the purchasing power of our money. So here is the next question,
2.) If you needed $2,200 of monthly income today, how much do you think you would need in 15 years to sustain that level of monthly income and standard of living?
If we assume a 3.5% average annual inflation rate, this would amount to a monthly need of $3,685.77 just 15 years from now. That is a 47% increase in monthly income needs. Have you planned for this?
What is Lazy Money, and why should I be concerned?
Lazy money is any funds sitting in a checking, savings, money market, or CD account earning little to no interest. This lazy money is most eroded by inflation. My final question will help illustrate why this is important.
3.) If you had $100,000 earning a 10th of a percent interest in a money market or savings account and assuming an average annual inflation rate of 3.5%, what amount of purchasing power do you think you would lose annually in that account?
At the end of the first year you could lose $3,400. After 5 years you have lost $18,268. $40,055 lost by year 10, and finally $96,960 eroded and lost in 20 years, because your money was not working for you. Yikes!
Let me share my vision of your lazy money. If you could please just imagine for a second one of your hard earned $100 bills. Right now, your $100 bill is laying in a hammock, with his fake little sunglasses, with his fake little arms, holding its fake lemonade, just living the life of Riley! Your money has retired more than you have! In some situations, your money isn’t retired or even just “lazy,” your money is in a coma!
Ladies and gentlemen, it’s time to put this money back to work! There are strategies that include financial vehicles, that can provide safety and principal protection, tax-deferred growth and, in some cases, the ability to get increasing income in retirement.
If you would like to get more information on “lazy money,” then please reach out to ASA Group. We can help put your hard earned money back to work for your future