Unedited transcript:

Mark Struthers (00:00.194)

Welcome to the Healthy and Wealthy Retirement. For your certified retirement, counselor Mark Struthers takes a holistic approach to retirement. Going beyond finances and embracing holistic well-being, this YouTube channel will address not just the financial part of retirement, but also the social, the physical, and the emotional parts of retirement. Everything you need for healthier, a wealthier, and a happier retirement.

Mark Struthers (00:39.512)

Here is your host, Mark Struthers. Welcome to the Healthy and Wealthy Retirement. name is Mark Struthers. I’m your host. Thank you for joining us. Today we’re talking about inflation.

By now, you probably know what inflation is. Honestly, especially when I used to do employee well-being, most people would not know what inflation meant. They certainly would not understand how it impacts our society. Some would, but now people do. After having 9 % inflation, people understand it more. And I think the positive side of it is that

more people are taken seriously in retirement because it can be so devastating for retiree. Whereas before people kind of, they got used to not having inflation. And when you kind of get lack, lack of daisies, that’s when things can really, really hurt you more. So what is inflation? Reduce purchasing power. Inflation arose the value of money over time, making it harder and harder for anyone.

especially retirees to afford the same the same goods and services they once could compounding is magical when it’s working for you. That’s return upon return interest upon interest. And over time it can do wonderful things. Time and compounding are powerful but they are also powerful when they are working against you. And that’s that’s the dilemma a retiree faces that if you are

Most, most baby boomers had did not have to deal with a lot of inflation. You think about the 70s and early 80s. My family and I are now watching the classic Hawaii Five-O. During that time, they certainly did have some high inflation, but we haven’t had a lot of inflation, definitely less besides post-COVID, but the previous 10, 15, even 20 years, inflation was not really an issue. But when in retirement, when you’re talking, especially we’re living longer, 30 years.

Mark Struthers (02:48.814)

And you think about that compounding. The rule of 72 is one that can be helpful because you can learn what rate of return you need in order to double something’s value. Well, you could also use it for inflation to see how long it takes for your purchasing power to be cut in half. So if we had 10 % inflation, you divide that into 72, your purchasing power is cut in half in around seven years.

We use kind of 3 % inflation, which might be the new normal. Who knows, maybe not two. I don’t think that’s the end of the world, but it’s 24 years. Every 24 years, your purchasing power is cut in half.

Also, fixed income, you know, this compounding effect. A lot of retirees are on fixed income, especially pensions or annuities that don’t have an inflation adjustment. Or if they do, it doesn’t keep up. As prices rise, their fixed income dollars buy less. You know, and use my example. After, say, if we have 3 % inflation, which is not unheard of historically. And say you’re you get a thousand dollars a month, but that doesn’t change.

And especially healthcare, healthcare, can certainly have a lot more than three or you 6%. So after 12 years, your purchasing power is cut in half and another 12 it’s cut in half again. So what you could, medicine you could buy at the beginning of retirement is much, much less than what you could buy with the same dollar at the end. And, and as mentioned, part of the reason that inflation is more of a concern now, forget the recent post COVID past is that we’re living longer.

If you were only planning for 15 to 20 years in retirement, and you certainly could have a really bad stretch of 15 to 20 years, but generally that’s not enough time to maybe have to do real damage. But if you’re talking 30 years or more in retirement, that’s where that compounding effect of inflation can be more challenging.

Mark Struthers (04:55.027)

And just like it’s harmful for fixed income or pensions or fixed income streams, bonds, bond returns, it’s also impact savings accounts. So we’ve seen rates here, short term rates certainly come up with inflation. But just think if you were locked into now CDs have surrendered charges that you could get out of, or if you had savings accounts that didn’t adjust right away, that’s where inflation maybe could have more of

more of an impact. Also, the unpredictability of rates and I think that’s something that’s going to stay with us for a while. That when you have the stress of that, we could have inflation around the corner when you just don’t You know, sometimes it’s honestly it’s probably better to have very stable, but maybe a little bit higher inflation. Then maybe we would like, but that way people can plan and also

Just from a psychological stress standpoint, it’s easier. know, we might not like say, say it’s 3 % say that’s the new normal, 3.5 maybe 2, 2.5 really is the healthier inflation. You know, the Fed is right. But if we, but we can still have a healthy economy and we can still, we don’t have the stress of uncontrolled inflation, unknown inflation, especially as a retiree, just like it’s difficult to go back to work.

Not knowing that what inflation is going to do next year, not knowing from a health care standpoint or just getting your milk. That’s where just the unexpected spikes can disrupt your retirement budgets and cause a lot of anxiety. And if you have additional anxiety and stress, that could lead to more health care costs. You know, you could see where. Where that could be really devastating. That’s why I don’t know how long this will stay with us and

You you can always get into the argument of who should be, who should be kind of steering interest rates, the free marketplace or the Fed. But if it’s the Fed, let’s hope that they can stabilize things. So our retirees have less stress and more predictable inflation rate. Of course, I’m not sure that’s ever going to happen with healthcare. Asset depreciation was one I had, you know, and obviously you could tell stocks and bonds lost value during this unusual inflationary time.

Mark Struthers (07:22.955)

Now, of lower, lower, healthier inflation can be great for stocks. means companies are growing. They’re raising prices. The assets they own are worth more. Wages are going up. So moderate light to moderate inflation can be good. It’s just these really hardcore inflationary times, but also assets. Now, in this case, we saw real estate home values go up, but we saw commercial real estate go down, you know, and that was

partly a matter of timing post COVID, but to have all these rates reset. it’s not always generally real assets are going to generally do better during inflationary times, but you can’t have situations where real assets go down.

And I think I made references cost of living adjustment. Social security has a cost of living adjustment, but generally for especially with healthcare, it’s generally not going to offset. It’s not going to match real inflation. I once went, went back and looked at the difference. I did it for our financial plan software. said, what sort of different differential should I have between social security’s cost of living adjustment and real inflation? And then we take that number and it’s usually fairly small.

you know, somewhere between three quarters of a percent and 1%, something like that. Now, if it’s, again, when you’re planning, only planning for say 10 or 15 years, not a huge deal, but especially if you’re planning for 30 years or more, even that 1 % when it’s compounded, compounded can, can be impactful.

So what can you do about it? Well, you run financial planning scenarios before you retire. You know what to expect. You stay informed. I’m a big fan of this one. Continue to work part time. Wages generally go up with inflation. Hasn’t always been the case. But if you keep a foot in the workplace and sometimes if you’re going to want to do something that you really like, then you might might take some planning. I see us with higher earners, especially where

Mark Struthers (09:27.837)

Often they won’t admit it, if you were to, to, it’s home from the outside to take a look at it because either their egos are so, large, you know, their egos is what pushed them, what caused them to achieve. Quite often they’re not going to be happy bartending. Some would. I’ve known some who have actually done it. I have no, some, some who say it now and I believe them or a Walmart greeter or whatever the case may be. If you truly can.

can go to a job that maybe you wouldn’t have taken during your working years. That’s great. But if you can’t, then you might want to plan ahead to make sure you can do something that if you don’t enjoy, you can at least live with. But continue to work part time is a great inflation hedge. I also think there’s value in staying active. There’s also social circles that come with work. It’s a nice little hedge. And for most people,

Especially post kids. I think about once my kids are fully out of the house and we’re less involved in their lives, there’s going to be a lot of free time. You know, the idea that it’s all personal, you know, there’s no right or wrong here. get some people want to just not do anything, but I often, I really do think working like 20 to three hours a week is certainly going to be a, even doing that, it’s an easy retirement. Now, maybe I’ll feel differently when I’m 70, but I think if you can work longer, that’s helpful.

you could invest differently. So longer term equities are a great inflation edge. There is difficult to get inflation adjusted growth better than what you get for from equities. You can point to real estate. Keep in mind. Your primary home does not produce rent. It, it’s a cost. The house itself is a consumable asset that decreases in value. You have to pay money to keep it going. That’s a separate conversation. But when you look at rental properties now again.

Your timing could be bad if you’re doing commercial real estate. It’s something like post COVID and with rates and resetting and we had a large demographic shift with work from home and so forth. But generally speaking, real estate, generally speaking, are a good inflation hedge and you certainly saw it with housing. So those who are renting properties could raise rents. Now, if we would have had a recession, that might not be the case.

Mark Struthers (11:52.203)

But certainly our home values have gone up as a result of this. Tips or Treasury inflation protected securities might provide some small inflation hedge over enough time. If you look at the performance of tips, even total returns over COVID, post-COVID, it wasn’t necessarily great. Tips generally have some duration risk with them. That means they’re sensitive to rising rates.

And it’s their role. think they I still use them, but I think their role has to be really thought out as far as what you pair them with to to act as to be useful in the portfolio, especially from an inflation standpoint.

I also think you have to be real proactive about managing your fixed income. You see us a lot would do it yourself or is the folks that just love Vanguard. Well, if you were a retiree and you just bought a Vanguard fixed income fund, especially if it was, we use interest rate sensitive, you could say it was longer duration. You still haven’t gotten back to even in some of these not even close yet. And it could be some time compared to where you were.

If you were relying on that fixed income to be a ballast, and it is during recessions or depressions, when there’s a flight to safety, when rates are declining, but when you have what we have where it was an inflationary rising rate time, it could be devastating to a retiree’s portfolio. So you have to be a little more sensitive. It doesn’t mean you don’t, no one could really predict how bad things would have gotten for fixed income for bonds.

But you could say when rates were really low that there wasn’t a lot of upside. was unless our rates were negative like in Europe, there wasn’t a big advantage to to having a lot in longer duration fixed income. There could be some advantages. Now, that depends on what you’re trying to do. But you I think most advisors who put some thought into it said, you know what, let’s scale this back a little bit in case rates do rise. Let’s have some assets that aren’t going to be heard as bad or maybe even benefit.

Mark Struthers (14:06.593)

Also, be prepared to cut back. This is where having that conversation early to say, if we do get a bad inflationary time, what can we cut back on? That’s where it even doesn’t have to be, you know, month to month, but maybe once a year or every two years, take a look at your budget and say, what’s discretionary? What’s non-discretionary? Even from just a down market, but from a inflationary standpoint, if we had to cut back, where would it be? Maybe we take one fewer trips.

Now maybe we don’t buy organic food for six months.

One big one is stay healthy. Healthcare inflation was bad pre-COVID. think it’s honestly, just, I think it’s always going to be bad. I just do. So if you can stay healthy, that’s a great inflation edge. You know, if you don’t, you know, especially if you don’t have to worry as much about healthcare inflation, you know, that could be a great way of dealing.

Mark Struthers (15:04.747)

Also having income from different streams. say you’re not getting income, you know, maybe it’s social security. Maybe you have an annuity. Maybe you have a pension. Maybe you have equities, you have fixed income. It could be dividends. There’s other ways of producing kind of traditional income. Ideally, any portfolio should have a total return approach. That’s the most effective way, given you should be rebalanced anyway. That again, that’s a conversation for another YouTube channel, but having different income streams. So even saying

I have some rental property, you know, and, you know, and it’s not always going to be the case, but, you know, in this case, for the past few years, you could have raised rents, even while your portfolio, your stock and bond portfolio were down. Now your stocks have come back and they’re even a little bit above most asset classes where they were. But having those different income streams gives you a hedge, you know, it has for inflation, especially when you don’t know maybe exactly how inflation is going to hit all your assets.

That’s all I have for you. hope the bogeyman inflation isn’t a scary, Baba Yaga, if you’re a John Wick fan. I think I pronounced that correctly. So please hit subscribe below for more tips so you can have a healthier, a wealthier, and a happy retirement.