One of our requirements as Certified Financial Planners® in helping our clients attain and sustain a comfortable retirement is to assess the many risks that can prevent them from achieving their goals. That’s why we look at the effect of purchasing power risk. The level of price increase (inflation) or decrease (deflation) has significant ramifications to retirees.

For most people, inflation seems to be the most worrisome. All of us have experienced rising prices, such as the increasing cost of medical bills, tuition, food, and taxes during our lives. In fact, take a look at the chart below. We can see that, due to inflation, the value of the dollar has declined steadily over the last half century. The goods and services that one dollar could buy back in 1970, today will only buy $0.17 worth.

What Inflation Means for Retirement

The challenge is to try to predict the level of inflation during retirement years, after the paycheck has stopped and savings are being drawn down. If inflation gets out of control or outstrips the earnings capacity of the retiree’s nest egg, then the quality of life for the retiree will decline.

Also, retirees need to be planning for longer and longer retirement spans as life expectancies continue to improve. Therefore, even modest inflation levels can seriously erode the savings of retirees. For example, the most recent (February 2017) release from the Bureau of Labor Statistics, which publishes the Consumer Price Index, lists current inflation before any seasonal adjustments at 2.7%. Doing the math on the effect of this rate of inflation on a retiree means that purchasing power will drop by 25% in ten years.

How to Combat Inflation

To combat this situation, retired investors need to plan for and take action to mitigate against the detrimental purchasing power effects of inflation. There are many opportunities to do so. One way is to segregate your portfolio by time frames. Short term needs can be invested into more conservative options. However, longer term needs can be invested into a diversified portfolio of equity investments that will grow at a faster rate than inflation over time. Some other inflation protectors are hard assets such as precious metals, commodities, and real estate. Each has its own advantages and disadvantages which can be managed to best meet your inflation protection goals.

At Geier Asset Management, we have studied the effects of inflation on our clients’ portfolios and have formulated some very attractive strategies to combat the drop in purchasing power. We can help you plan a successful retirement income approach that will alleviate the harmful attack on your quality of retirement life from inflation.


© Geier Asset Management, Inc. March 2017. Thomas M. Geier is a Vice President of Geier Asset Management, Inc., a Registered Investment Advisor. The above blog reflects the opinions of Mr. Geier and not necessarily the firm. Any advice given is general in nature and investors must consider their own individual circumstances. Past performance is no indicator of future performance. The firm makes no warranties or representations of any kind relating to the accuracy or timeliness of the information provided.