When planning for the future, one must keep in mind the damaging effects of inflation. Inflation refers to the increase in the rise of prices and the decrease in the purchasing power of your money. Simply put, each dollar you spend buys less and less goods over time; it costs more money to buy the same amount of goods and services. We have seen examples of this increase this year in the cost of commodities, gasoline, and food prices.
The annual inflation rate in the United States surged to 7.5% in January of 2022, the highest since February of 1982. Many savings accounts are paying interest of less than 1%. This means the return you are earning on those accounts is far from keeping up with the increase in the cost of living.
In addition, the Senior Citizens League estimates that the average Social Security benefit has lost almost a third of its buying power since 2000 because benefit increases have failed to keep up with the increasing cost of prescription drugs, food and housing. This has happened even with yearly cost-of-living adjustments (COLAs) for Social Security benefits that are designed to make benefit amounts keep up with inflation.
Therefore, it’s important to have a retirement strategy that early on considers the possibility of long term care needs and increasing expenses in retirement. Financial professionals and estate planning attorneys can assist you with developing a strategy. Given the effect inflation has on the increasing costs seniors will face when it comes to long term care, an estate planning attorney can guide you on options such as the purchase of long term care insurance or Medicaid planning.
Many astute investors are speaking with financial professionals to find ways of growing their money. Alternatives exist for clients interested in growing their money that may keep up with the damaging effects of inflation. For those clients interested in generating income, there are various solutions depending on the client’s financial situation according to Michael Higgins, a Certified Financial Planner with Woodbury Financial in Manhasset, New York. Higgins notes that they have the potential to generate a much higher interest rate and some of them are tax advantaged. The interest rate has the potential to be tax free or taxed at the lower preferential dividend rate rather than the ordinary income rate tax rate.
The support of a dedicated financial advisor and attorney can make a big difference in your overall plan. You should be able to enjoy your retirement years with minimal concerns in light of strategic goals that were set years in advance.
