How Does Inflation Affect My Retirement | The Retirement Income Show | Inflation and Your Retirement Planning

 

Mark: Welcome back to the retirement income show with Troy Sharpe, the CEO, and founder of Oak Harvest Financial Group. You can call the team if you want to chat about your situation, It’s 800-822-6434. You can do a zoom meeting if you’re more comfortable with that. You can do just a 15-minute phone call and kind of find out, ‘hey, are we a good fit for the team at Oak Harvest, and are they a good fit for us?’

800-822-6434, you can find out more on the website, certainly, Overharvest Financial Group dot com. Oak Harvest Financial Group dot com. If you want Troy’s autograph because you’ve heard him on the radio and you’ve watched his YouTube channel, you know, just go kind of hang out around 920 Memorial City Way off the I-10 on Bunker Hill, maybe you can get his autograph.

He probably has security around him, I don’t know, he’s kinda big time, but that’s where the office is located. And of course, don’t forget the YouTube channel, over 100 videos on that thing right now.

They’re really cool and they’re really neat because they’re about educating you about these different areas of retirement planning, financial topics, and the like. Just search for Oak Harvest and Troy Sharpe.

All right, we’re talking about are you retirement ready, and how in the world do we even figure that out? How much do we need? Everybody’s situation is different. Is a million dollars enough? Well, it’s plenty for some and it’s not near enough for others. Right. Everybody’s situation is different.

We’re just talking about risk. And I think most of us think of market risk. But there is longevity risk, there is inflation risk, there is tax risk as well. So let’s touch on that a little bit because I think it’s one of the bigger topics.

When Jerome Powell, the Fed chair, went on 60 Minutes and I think it was in March, he was telling them that, “yeah, we’re going to keep interest rates low through 2023, probably at least maybe longer. We’ll see how it all plays out.”

But we’re going to try to get inflation to start rising. We’d like it to be around two percent. Well, we know medical costs are around six percent, but I think people kind of get a little nervous when inflation is being bandied about, and I think a lot of economists across the country are going “the next big challenge for us will be inflation”. And that’s a risk.

How do you look at inflation?

Troy: Well, so I, as a retirement planner, we have to look at inflation over a 30, 35, 40 year period.

So first off, policy decisions. Now, what we’ve went through with coronavirus is unprecedented as far as the amount of money that the government has made up out of thin air, and injected into the financial system. Whether it’s the Federal Reserve printing money or Congress borrowing money and providing stimulus checks and paying people not to work and, you know, mortgage forbearance and all these various programs that they put in place. I’m not debating the validity of the programs or those of you who may have benefited from them.

And I mean, absolutely. We took a PPP loan, OK, so I mean, I benefited from these programs. I’m not speaking to the validity, but in the middle of the pandemic, when everyone is scared to death about what is going to- is everything going to be shut down? Is anyone going to work again? When all of this is going on it makes sense to take advantage of these programs as far as the choices that you have to make for your family and to protect your interests.

I’m not speaking to the validity of those because a lot of people obviously have benefited but from a retirement planning perspective. You have to look at inflation over a 30, 35 year period. And then when you look at the trillions and trillions and trillions and trillions of dollars that have been made up out of thin air and put into the economy and the financial markets, you have to say “OK, what impact does this have on my client’s retirement? On their income? What impact does this have on their taxation today and down the road?” And there are a lot of decisions that need to be made, a lot of conversations internally that we need to have.

So to bypass all those conversations and hours of internal debate that we’ve went through and what we’ve researched and the people we’ve talked to and all the work that we put in as a team. Long story short, a lot of the concerns over inflation in the short term are somewhat overblown.

They’re more the media is trying to do what the media does. The media tries to scare you. OK. Plain and simple. The media is the biggest fear-monger out there, and they do it so you watch longer, you stay connected to them, you click on their articles more and more and more. Their job – and I don’t care if you’re talking about the liberal media or the conservative media – the media’s job is to get you to click on their material, to get you to watch their content, and the more you do that, the more money they make. There are no charitable news organizations out there, as far as I’m aware, at least. Now, I see a lot of articles, especially on certain websites, that it’s clear to me their sole purpose is to scare people to get them to continue to tune in and continue to read or click or so forth.

So what we’re seeing right now is what most economists call transitory type inflation. And this is simply short-term. What we’re seeing is during the Covid period, the government flooded the economy and your pockets – depending on how much income you make – with extra dollars. The personal savings rate in this country jumped by 31 percent. To provide some historical context. It’s typically around about five percent. So that means out of all the income over the past year, Americans have saved 31 percent of it. Unprecedented, not even close to ever being done before.

If you go to the Federal Reserve website, you can see a line graph of this and it’s parabolic. It literally shoots straight up when we’re talking about how much money people saved. Also, people are being paid to still not go back to work.

Now personal savings, it is up. A lot of things have been shut down over the past year. So there are Covid benefited industries and Covid damaged industries. So we’re starting to see supply chain disruptions across various parts of the Covid benefitted parts of the economy.

So this creates pricing. This creates purchasing issues as far as pricing is concerned, because if you can’t access parts you need to make your ‘whatever it might be’, computers are a good example, cell phones. I know cars are very difficult to buy now because of the chip shortage.

Companies that have benefited from Covid. Now think about cruise lines, for example. That’s a great example of a company that did not benefit. So you have those damaged, Covid damaged type companies.

And then you have companies that have benefited. Think of Disney plus subscriptions. Think of cars, possibly. People are taking some of this money and buying cars. Think of televisions. People are upgrading their television from some of this money. Long story short, as we’re seeing pricing pressure, which is inflationary with Covid benefited industries.

Now, most economists believe that as we switch to a more open economy, the damaged industries from Covid will start to see dollars flow into them. That reduces pricing disparities over here in the benefitted industries. And now the money’s flowing more equally over to the Covid damaged industries.

So I hope I was able to explain that in a clear enough context. But essentially inflation should start to dampen down in the third or fourth quarter of this year on a general basis. So what we’re seeing right now, is, yes, they’ve printed tons of money. There’s no doubt about that. But that inflation does not automatically flow through the economy. That’s inflation we’re going to have to worry about over the next 10 to 20 years. It’s not just going to happen tomorrow.

Mark: Troy, didn’t they think in the Great Recession when, you know, the Obama administration did, I don’t know, 800 billion or whatever to help people during the Great Recession, weren’t they expecting higher inflation?

Troy: Absolutely.
Mark: And it never came to fruition?

Troy: Never came. Never came to fruition.

So now, the big difference between what they did in the Obama years versus what is taking place over the past 12, 15 months or so, is the magnitude of what’s been done now is much, much, much, much greater.

So trillions and trillions and trillions of dollars beyond what they did back then, they’ve done now. And President Biden still has trillions and trillions and trillions of proposals on the table. So upcoming negotiations for various budgets, various bills, will impact how much ultimately gets spent.

It is clear, though, that it’s time to get back to work. We can’t continue to send money out to everyone. I’m sure certain people still need money. Certain people still need help. But we need to be a bit more judicious with where we’re allocating our dollars when it comes to providing some of these benefits that are still Covid related.

So, OK, long story short, to not get too into the weeds here, is, inflation is a concern long term. It absolutely is a concern long term. We have 28 trillion dollars in debt. We owe twenty-one trillion of that to ourselves. Seven trillion to foreign nations. And the foreign nation’s component of the debt is actually coming down. It’s the debt that we owe to ourselves that is actually increasing. There are two ways to get out of this situation. Either pay it off, which the government has to increase taxes to do because even if they confiscated 100% of our income, it’s still not nearly enough to pay down the debt and it never will be enough. But the other way is through inflation. So that is a huge concern. Now, how does this relate to you and your retirement?

You must understand, if you need 50,000 dollars today to support your lifestyle, you will need 100,000 per year to withdraw from your portfolio in about 20 to 25 years. So if you’re 60 now, at 80 to 85, you’re going to need double, most likely.

That’s at a historical inflation rate. If we get to four or five percent inflation, that’s going to happen in your 70s. So just understand that when we’re building retirement plans, from my perspective, as a retirement planner, as an investment manager, when we’re customizing these to your situation, the investment plan, this inflation is one of the biggest components that dictates how the investments should be allocated, how the investment money should be allocated. We need to focus on income. And then the third one there is taxes. So taxes play a huge role.

We did an analysis for a couple who came in recently and they said, “Troy, we’ve been listening to you a long time on the radio, we really like what you’re saying. But we’ve been with our investment guy, you know, he manages half our money, I manage the other half. I just don’t think I want to make that switch because I’m comfortable from the investment side of things.”

We go through the tax analysis and it is literally over a million dollars in potential tax savings by making different decisions than what he and his investment adviser have been doing.

The investment plan must work together with the income plan and the tax plan. It is the only way to optimize. And if he would have continued to have left that money at his investment advisor and managing it himself, there was no way to continue to make optimal decisions year after year after year after year in a cost-efficient manner.

He’s paying the investment adviser the same thing he’d be paying us. He’s paying the mutual funds that he’s managing himself, the same amount of money he’d be paying us, so there’s not a cost savings there. But there is a tremendous cost to paying just for investment management, whether it’s through internal expenses with mutual funds or ETFs or transaction costs or to another adviser if you’re not getting the income planning, the tax planning, the health care planning, and the estate planning. That’s value. That’s value, and that type of value should provide enough compensation way over what you’re paying for over the course of your retirement.

Not to mention the other stuff we talked about, the behavioral decision-making and several other aspects of what a good financial advisor does.

OK, one 1-800-822-6434. If you’re watching this on YouTube, give us a call anytime, leave a message if it’s after hours.

We’re located in Houston, Texas. If you are here in Houston, give us a call. Frank will call you back on Monday. We do not have anyone working on the weekends here. We believe the weekends are for spending time with your family. And leave a message, we’ll give you a call back.

The first visit, simply to get to know you. It’s done through phone call, it’s done in person or it’s done through Zoom. And then the second visit, we’re going to ask you to come down to HQ here, because we want to get to know you, you get to know our team, and we’re going to pull up on the big televisions in the conference room, and we’re going to look at an income analysis, a tax analysis and also an investment analysis and start to show you how everything I talk about here on the radio show can be applied to your retirement in a customized fashion to help you feel more secure with the decisions you’re making. Oak Harvest Financial Group 1-800-822-6434.

Investment Advisory Services offered through Oak Harvest Financial Group LLC, Oak Harvest Financial Group is an independent financial services firm that helps people create retirement strategies using a variety of insurance and investment products. Investing involves risk, including the loss of principal.

Any references to protection benefits or lifetime income are generally referred to as fixed insurance products, never securities or investment products. Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. Oak Harvest Financial Group LLC is not permitted to offer, and no statement made during this show shall constitute tax or legal advice.

You should speak to a qualified professional before making any decisions about your personal situation. We are not affiliated with the U.S. government or any governmental agency. This radio show is a paid placement.