1) Inflation Is Part of the Federal Reserve’s Monetary Policy
A January 25, 2012 press release from the Board of Governors of the Federal Reserve stated: “The Committee judges that inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve’s statutory mandate. Communicating this inflation goal clearly to the public helps keep longer-term inflation expectations firmly anchored.”
2) Inflation Is Already Here
$1000 in groceries in 2000 equals $640 worth of the same groceries in 2013. That’s a reduction of 36% in just 13 years.
3) The Experts Agree – The Writing is on the Wall
“While economists disagree about many issues, there is near unity about this one: continuing inflation occurs when the rate of growth of the money supply consistently exceeds the growth rate of output.” – Laurence Ball Professor of Macroeconomics Johns Hopkins University
“The government should always control the supply of money. And, in fact, target a growth in the supply of money–something like 3% a year on average.” – Milton Friedman
As of November 1, 2012 the U.S. dollar monetary base was $2.64 trillion. Up 83% in 4 years.
4) 5% Growth + 5% Inflation = ZERO
Warren Buffet, the Oracle of Omaha, once said: “It makes no difference to a widow with her savings in a 5% passbook account whether she pays 100% income tax on her interest income during a period of zero inflation, or pays no income taxes during years of 5% inflation. Either way, she is ‘taxed’ in a manner that leaves her no real income whatsoever. Any money she spends comes right out of capital.”*
The effects of inflation can have a major impact on how you spend your retirement years. Static growth, without protections against uncontrollable forces like inflation, is no longer enough for a modern retirement plan.
5) There Is An Inflation Solution – But Most People Don’t Have It
In a nutshell: millions of Americans are used annuities to provide guaranteed income for life. They also provide protection from market downturns. Both are great things. But, most annuities do not provide increasing income during distribution to help you keep up with inflation. Your income stays flat for the rest of your life. This is not a good deal. Example:
In 1993, your annuity payout is $20,000 per year and your expenses are $20,000 per year
In 2013, your annuity payout is $20,000 per year and your same expenses adjusted for inflation are $33,000.
A good annuity will have the potential to grow and keep up with inflation to help you maintain your lifestyle. If you have an annuity or you are considering purchasing one – check to see if your payout is level or has the potential to grow. Only a few annuities in the marketplace have the potential to grow during distribution. If you would like to know more about these annuities call our office at 480-970-5663.