This week the podcast digs into a topic that doesn’t come up all that often these days: inflation, and the risk it can pose to your retirement plan.
In one sense, it’s no big surprise that inflation isn’t much of a topic in retirement planning circles - after all, it hasn’t been a major threat for the economy since the early 1980s. But those of us old enough to have experienced the stagflation of the late 1970s remember how damaging it was - low economic growth coupled with inflation that peaked at 13 percent.
The big risk with inflation is that it cuts your purchasing power. That’s problematic for retirees living on fixed incomes. Most sources of retirement income are not inflation-adjusted (the one big exception being Social Security - more on that below). Even the low inflation rates we have experienced in recent years can take a big toll. For example, my guest on the podcast this week, Dirk Cotton, calculates that two decades of average inflation at three percent would cut your purchasing power in half over that time.
Dirk is a one of the smartest retirement researchers around. He has a great eye for important topics that don’t get covered enough that he writes about at The Retirement Cafe.
Dirk recently posted two articles about retirement planning and inflation that caught my eye. The first looks at historic patterns of inflation - and how unpredictable the trends can be. He also examines generational differences in perspectives on inflation (spoiler alert - boomers worry about it, GenXers and younger don’t). The second post discusses a recent paper that Dirk co-authored with economist Zvi Bodie of Boston University, examining inflation-adjusted annuities - specifically, why there is almost no market for them.
To hear my conversation with Dirk Cotton, click on the player icon at the top of this page.
Subscribe now!
This podcast is part of the subscription RetirementRevised newsletter. Subscribers have access to all the podcast, plus my series of retirement guides on key challenges in retirement. The series includes topics like Social Security claiming, the transition to Medicare. The series also will include guides to aging in place, working longer as a retirement plan and much more. For a sample, check out the recently-published guide to the cost of healthcare in retirement, featuring an interview with retirement educator and actuary Steve Vernon.
You can subscribe by clicking the little green “subscribe now” link at the bottom of this page, or by visiting RetirementRevised.com. And if you’re listening on Apple Podcasts or Stitcher, I hope you’ll leave a review and comment to let me know what you think.
How to protect your retirement from inflation