The Real Impact of Inflation on Your Retirement

[00:00:00] Speaker A: Any examples used are for illustrative purposes only and do not take into account your particular investment objectives, financial situation or needs and may not be suitable for all investors. It is not intended to predict the. [00:00:11] Speaker B: Performance of any specific investment and is. [00:00:13] Speaker A: Not a solicitation or recommendation of any investment strategy. Welcome to All Things Financial, the show. [00:00:20] Speaker B: That helps upgrade your financial literacy. [00:00:22] Speaker A: Trey Peterson and Yelise Coutts are retirement planning specialists here to provide a unique and conservative approach to managing your money. [00:00:31] Speaker B: Now here are your hosts, Trey Peterson and Yalouse Coutts. Hello. [00:00:38] Speaker A: Welcome to the All Things Financial podcast. I'm Trey Peterson with my business partner, Yalase Coutts. And we've got episode. Was it number 31 today, number 32, or. We've been getting after it. And today we're talking about the real impact of inflation on your retirement, how to protect your buying power and worry less about spending. Before we dive in, I always like to talk about what we're going to talk about before we do that. Who are we? So, Trey Peterson, YellowState Coutts. Our show, All Things Financial. We have a planning, a retirement planning firm in Burnsville, Minnesota, and we have an office in St. Louis park, and we work with those in and nearing retirement. So excited that you joined us today. Today we are going to be talking about inflation. We've got five strategies to inflation proof your retirement that I think could be really helpful for those of you who are listening and are in and nearing retirement. But before we dive in, we've got a quote of the day. Yolisse. You want to jump into that? [00:01:41] Speaker B: Yeah. So this one's from Warren Buffett. The arithmetic makes it plain that inflation is a far more devastating tax than anything that has been enacted by our legislatures. The inflation tax has a fantastic ability to simply consume capital. [00:02:00] Speaker A: What does that mean to you? [00:02:02] Speaker B: Yeah, well, I think that, you know, we're obviously going to dive into it a little bit more once we get through the intro, but inflation is, I think it's one of those things that sneaks up on you because you don't really notice it as much. And one of the things that I wanted to talk about was comparing inflation to real wages. And, you know, I think that if you're, if your ability to maintain your lifestyle is maintained, a lot of times people don't look at that as a net positive. They just look at the fact that everything costs more. And it's really difficult to predict how that's going to affect your retirement savings in the future. But I think that, yeah, it's it's, I mean, in some ways, you know, we know what the tax, what the rate is, the tax code. We know what that is. We know we can calculate that. But inflation is a little bit more sneaky and. But it could be just as devastating to your portfolio. [00:02:49] Speaker A: Absolutely. Well, I think too, you know, obviously it's hurting everybody, but you think about people in retirement, a lot of times they have fixed income sources or, you know, they've only saved so much. And so it's even more impactful on those engineering retirement. But why don't we jump in? Number one is how inflation hurts older Americans and retirees. Where would you like to start? Yellow, say, before we jump into the top five? [00:03:16] Speaker B: Well, I think that, you know, the most of today's on inflation. So, you know, and if inflation doesn't get you excited, the topic of inflation, I don't know, it's one of my favorite topics. [00:03:28] Speaker A: Does it for me? [00:03:29] Speaker B: Is it for you? Well, good. Why do we have a great show for you today? You know, one thing that's been talked about and I've heard you mention it too, and I think I just kind of want to challenge it a little bit. Not a lot, but a little bit because there's a lot of truth to, to what, what you've said many times and others say all the time, it's that, you know, cumulative inflation, if you look at over the last, you know, three years or so, it's up about 22%. And the idea is that, you know, sometimes you hear people say silly things like, hey, if only prices could go back down to the levels where they once were, you know, three years ago, four years ago. If only we could experience those types of prices again. And that's just not going to happen, at least not on average. Right. Like inflation, it almost never decreases. The rate of inflation just goes down. Right. So we've noticed that the rate of inflation has come down a little bit, but we're not going to experience the prices from three to four years ago like that would. We would actually have to have deflation for that. And you know, a recession is typically what precipitates a deflationary period. So most of us don't want a recession, so we're not going to experience the prices from back then. So that's a very real thing. But at the same time, you know, sometimes people think that just because inflation is going up on average, every good and service is also more expensive. And you know, one of the things that, you know, I don't want to get out of conversation on the topic of eggs again, because I know we probably spent a little bit more time than we needed to on that. I think it was either the last podcast or maybe two podcasts ago. But if you look at like the Items that the St. Louis Fed tracks, whether it's eggs, milk, cheese, whatever those items are, like, it actually ebbs and flows. Some of those items, like, they do get more expensive over time and they do represent like, exactly. Like if inflation, like, I think in October it was announced that it was 2.6% or something like that. It doesn't mean that everything goes up by 2.6%. Like for instance, used cars, like you and I were just talking about this. Like, that number might be artificially low because used cars are pulling the total, the overall inflation figure down. So like, if you, if you think about what happened during COVID we had some serious supply. Supply chain disruptions, right. And it actually caused used cars to be extremely, insanely expensive during the pandemic. Part of that was like, you know, we, I think both you and I know people who had already ordered and paid for a new new vehicle, but they had to wait forever to get that car. And then in some cases they ended up selling the car that they got for an absurd amount over what they paid. Like, I think you have a few friends that maybe did that, right? [00:06:05] Speaker A: I do, yeah, absolutely. I, I've got a couple bikes that they bought a car, put the, put the first 10,000 miles on it and made 20 or 30 grand just because you couldn't get the car that they had, you know, so they were kind of living the dream. And a couple of those guys did it a couple times. They'd buy the, the newest model the first year they pre ordered it, got it put on 5, 10,000 miles, sold it 20 to 30 over, rolled that money into the next new car. So it was a pretty good gig for those that saw what was coming and maximized it. [00:06:37] Speaker B: Yeah. And so I actually, I ended up buying a 2020 Ram 1500 and I put about 27,000 miles on it before I sold it back to the dealership for exactly what I paid. You know, so it was, it was kind of a weird time, you know, but one of the things that you look at today, you know, out of the 80,000 goods and services that the Bureau of Labor Statistics tracks, you know, like that is one of those figures used car prices and year, every year they're down about 10%. Right. So if you look at the, the latest inflation report that we Received, like used car prices are actually dragging that number down. But eventually prices are going to normalize on used cars. So, like, if you, if you consider, if you were to take, you know, if you were to look at used car prices and eventually they normalize and everything else stays the same. If all things remain equal after that, the, the actual inflation figure, the average might be quite a bit higher than that, you know, so, yeah, it's one of those things that, you know, when I consider what actually affects my purchasing power, it's not just, you know, there's a lot of things that could, that could affect the price of things. And it's, you know, in some ways it's, it's Economics 101, right? When the demand for something exceeds the supply, price has to go up, just like they did with used cars. But, you know, there's other things too. You know, the cost of distribution, the demand by the end user. And of course, inflation could play a huge role in all of that, the cost of production. But that's why we actually see that depending on each specific good and service, you can see that it does ebb and flow. Sometimes it goes up, sometimes it goes down. Like insurance on vehicles, for instance, that's up, I think, 14% if we look at the October inflation report. So there's a lot of things to consider. And I think that as we go into what retirees can do and the steps that they can take to help mitigate inflationary losses, if you will, you know, there's a lot of things to consider, and I don't think most people have the time to go through each of these things. They just know that, hey, you know, whatever talking head they listen to on the news, like that person is telling them that inflation is up, inflation equals bad, and they don't really consider, you know, real wages or maybe how they spend their money, or the fact that, you know, the market's been up over the last two years and that actually makes a difference too, and their overall standard of living and what they can afford to do in retirement. [00:08:55] Speaker A: I think the biggest thing too, that we see is, you know, we're helping people pull off a certain amount of income from their investments every month. And I'd say the last year out of the 12 years that I've been in the financial services business, I've had more people call and say, hey, you're sending me two grand a month, can you bump it to 2500 or three grand? Hey, you're sending me five grand a month. Can you bump it to six or seven. You know, so we're seeing people feel the pinch and it's requiring them to draw down heavier on their investments, you know, than, than they did for years. And one nice thing is, you know, when you have years, like the last 12 months, where the market's up so they can pull more and their accounts are still growing, when it's really difficult, was in 2022 when costs were going up and people's portfolios were going down. That's, that's a difficult situation. You know, some of the, some of the stats I'll just read off for seniors that they're complaining about is 66% of them surveyed by Greenwald Research said that they are going to run out of money or they're concerned, excuse me, that they're going to run out of money in retirement, which is up 6% or 10% from 2023. You know, 33% of 55 year olds and 43% of 65 year olds have postponed retirement due to inflation. We've got several couples and individuals that we're working with and they've said, man, my plan was to retire at 65, but I'm going to wait till 67. Now many of them have said, hey, we've got, we've got mounting debt and I'm concerned about what's going to happen in the market. I'm going to work two more years just to see what happens here, you know, just out of a sense of peace of mind. And then 35% of retirees are withdrawing from savings or investments in the last 12 months in response to inflation. And I think one of the things y'all say that we've seen, you know, really since I'd say 21, is we have more people that are drawing on retirement assets, but they're not retired yet because their income hasn't caught up. But they're gonna, they're just pulling an extra 500 or a thousand or 1500amonth from the portfolio just to pay for the expenses. And we've really not seen that before. [00:11:12] Speaker B: Yeah, and one thing to kind of piggyback off one thing that you said, and maybe just because, you know, I've been like labeled the pessimist in our office, but I think everybody should postpone retirement. You know, why take a chance? Here's my thinking. You know, people don't realize, like, how much good does an additional year or two of working, staying in the workforce, like, how much good would that do for your portfolio? Well, there's a couple of things that it does not only are you bringing in more income that you wouldn't have otherwise had, you're also not in most cases beginning to take distributions on that portfolio. So like, you're withholding those distributions, you're not taking them and you're probably actually contributing. So now not only do you have more income, you've also not started drawing in your portfolio, but you're probably making those contributions and maybe taking advantage of an employer match. Like, what's not to like, right? Of course, the challenges like that, I think that most people have is, you know, they've already committed, they already have a date in mind. They know that they want to retire on November 16, 20, 25 or 20, whatever that is. And just to readjust and to have an honest conversation, it probably wouldn't kill you to keep working. But sometimes when you've committed to that, it's kind of like, you know, I don't know, I think just difficult for people to do. Yeah, spending, like that's the other option. Like if your, if your portfolio is struggling, like, okay, you can work longer or you can cut spending. Um, I don't know, like, nobody likes any of the good solutions. [00:12:37] Speaker A: No, but what I would say, and just, you know, a couple of steps that are important is if you're preparing for retirement, one of the things that we'd encourage you to do, and a lot of people that we meet with are doing this on their own is those last two to three years, get some of that remodeling done while you've got great income, you know, upgrade your vehicles. I met with a couple last week. They did like a hundred thousand dollars home renovation. Actually. I didn't even show you this. Ysa with this amazing couple, she's a real estate agent and he's a CEO or president of a construction company. It was, it was actually the best remodel I've seen my whole life. They took the front of their home, which is, they showed me it was mostly rough, so never, never very attractive. But they bought the right property. The home had a great layout and they literally took the front of the house off and they replaced it. Obviously a six figure remodel, but their home, the front of it went from like a 3 to a 12. I've never seen money better spent making something more attractive. But they, they knew like, hey, they both are high income earners. They're going to be retiring in a couple years. Now's the time to knock out that home remodel and they're forever home. They both upgraded their Vehicles, they have brand new vehicles that they, you know, hope to, that will last the next 15 plus years. And so one of things we'd say is, you know, people are working a lot of times an extra couple of years so that they can do some of those big things but not pull it out of the retirement accounts. They can use, you know, their income to do that before retiring. So that's one of the things that we'd also recommend is, you know, instead of retiring and using your retirement account to pay for the boat or maybe the new Tahoe or the new, you know, Toyota, whatever that thing is for you, maybe work an extra year or two to knock those things out so you don't have to pull so heavily on investments with inflation. [00:14:29] Speaker B: Yeah. One thing I wanted to, hopefully, I probably should have talked to you about this before we started, but I'm just going to use fake names that rhyme with the actual names. If you remember Harley and Sam, they were just in the office last week and their situation was completely different. I mean, so of course their expenses have gone up. Right. Due to inflation. But one thing that's changed for them, which I think does represent a lot of American families according to real wage growth, which is wages adjusted for inflation. Right? [00:15:03] Speaker A: Yeah. [00:15:04] Speaker B: Or, you know, in other words, constant dollars. Right. Their, their expenses have gone up and actually, like, they're surprised. They're, they're doing like a real budget. They're going through every single item and they're, they're, they want to pinpoint the exact amount that they need to spend. But the conversation was overwhelmingly positive because, like, of the growth that they experienced in their accounts over the last two years. And for them, like, they have all the confidence in the world going into retirement. In fact, they were like, you know, they had a pep in their step. They were excited about the fact that, hey, you know, we can actually afford more of a retirement than we thought we could. And you know, and I think that one of the stats that I recently saw was with Fidelity. And I know Fidelity doesn't represent, you know, the entire landscape out there, but Fidelity, according to them, they have in the first quarter of this year over 485,000 accounts on their platform that have a balance of a million dollars or more. And like, that's just Fidelity. And I know Fidelity, you know, maybe they're the number one person in the space in terms of, you know, employer sponsored plans, but, you know, we're not including Schwab Vanguard or any of the other platforms. Right. That's just Fidelity. [00:16:16] Speaker A: Right. [00:16:17] Speaker B: You Know, I think a record for them. And I think that, you know, as much as inflation has played a huge role, I think most people, if your advisor is somewhat competent, if like, if you've been doing the right things, if you haven't been fearful, if you, you know, if you've just been kind of staying the course. I think in 2023, you know, most people probably recovered a great deal of what they may have lost in 2022. Like the first half of 2024, portfolio values were climbing. Stocks and bonds, you know, obviously they suffered the sharp losses in 2022. But you know, the other things that have changed is in the employer sponsored plan space, if you will, employees have become better savers. Like on average, all the stats show that like a lot of the features that many of these platforms have been rolling out, like automatic enrollment, automatic savings escalations, default investment options. Much as I kind of, you know, didn't have a lot of positive things to say about target funds, I think people are actually more, they're more prone to saving and the easier and the more we simplify things, the better it is in terms of retirement savings for people. And I think that's happened too over the last couple of years, which is helping with, you know, this whole inflationary frenzy, this conversation that we've been dealing with over the last year or so. [00:17:32] Speaker A: Yeah, well, I agree. Let's jump into. Actually the piece I'm most excited about today. I'm an outline guy, a bullet point guy. I'm going to touch on them and then let's spend time on them. So we have five strategies to inflation proof your retirement. To help retirees and new retirees minimize the effects of inflation on their retirement, here are seven detailed strategies. Number one, analyze your budget and spending. So one of the things, ylsa, that you and I see all the time is people come in and they lay out their fixed expenses and they'll say, hey, our expenses are four grand a month. And I'll say, well, let's test that. Dave Ramsey has something called zero net budgeting. And we'll say between the two of you, you're bringing in 8,000amonth. So I'll say, so you guys live on four grand a month and you're saving 4,000amonth in checking, savings, brokerage accounts. And they look at each other and they look at me and they go, no, we're saving in the 401k or the IRA, but we're not saving after we get paid. So one of the things that we see is A lot of people underestimate their variable expenses. What I'll hear people say is, you know, we did spend all of it this year, but this year we replaced the roof. Hey, we did spend all of it this year, but this year we bought a vehicle, and we don't do that every year. We did do that this year, but this year we helped our kids with some school loans. We don't do that every year. And I guess the point I'm trying to make is most people have variable expenses every month, every year, and you have to plan for those. You know, a lot of the people that we meet with, they'll use a planning tool, and they'll play around with the planning tool based on their fixed expenses, not their living expenses. So number one is analyze your budget and your spending. The best way to start is look at your last 12 to 24 months and look to see what went out. And I would say, don't make excuses why it's not going to happen again, because it's probably going to happen again. Some of those big variable expenses are travel, eating out the amount of money you spend on gas, gifts, you know, for things, whether it's birthday presents, Christmas presents, home improvement things on your vehicle. You know, make sure that you are planning for those variable expenses. And when you do your projections, Yellow said, you know, this. You know, we meet with people all the time. It doesn't matter if they have a half a million or a million bucks in retirement. A lot of people are five to seven hundred dollars a month away from either being positioned well in retirement or running short on assets. So don't underestimate the importance of analyzing your, your budget and your current annual spending. [00:20:16] Speaker B: And I love that you said five to seven hundred dollars away from, from having a successful plan. One of the things I did in preparation for this, this conversation was I just, and I obviously I didn't grab like a giant sample size, but I just went through like 15, 20 of our clients, and I just said, hey, like, what are people spending on average clients that I know well? And the number that I kind of came up with, at least this was a few years ago, was they're spending about $7,000 a month. And I know we have some people that spend three times that per month, and people spend way less than that, but I think like a good figure. A lot of retirees that we work with, I could probably pretty confidently say that maybe $7,000 a month represents a good average. Right? Well, so in 2020, if you were looking, you know, three years ago, three or four years ago, that's about $84,000 a year. And if inflation is up roughly 22% cumulatively today, that would be about $8,300 a month. So if you spent seven grand back then, today you're spending about $8,300 or 100 grand a year. Yeah, we're talking about $1,000 difference. So you're saying if people could just do a little bit of planning and they could add five to $700 a month, that could be the difference between making it and not making it in retirement. If we just look at, you know, the last three years, that's forcing people on average to spend an extra thousand dollars. If you fall kind of within that average that I mentioned, like, that's a big deal. Like, if you were to sit down with your financial advisor today and just said, hey, why don't you add $1,000 to my monthly budget? Like, I can tell you just by, you know, looking through this recently, if every person did that, if every one of our clients did that, there'd be a handful of people that wouldn't make it like that. Their funds wouldn't last to an age that they're comfortable with. Right. Adding thousand dollars a month, that makes a big difference. So inflation does play a big role in that. And I think that whether you're talking about cutting expenses or analyzing your expenses, you know, having a realistic conversation on how you spend your money and being precise with that and just realizing the impact of an additional thousand dollars, or as Trey mentioned, 5 to 700, like that makes a big difference. [00:22:17] Speaker A: It does make a big difference. And I think, I think what people underestimate is it's not just the 500 or the thousand a month. It's the fact that that money isn't making you money every month, every year for the next 25 years. So when you think about, you know, we talk about compounding interest in one way, it works the opposite way, too. If that money's not there, you're taking out less money and you've got less money. That is compounding. Hey, number two, think about downsizing or relocating. Now, even though I say this, one of the things I would say is more and more of our retirees are moving to smaller homes or cities. Like, I met with a couple yesterday and they said, hey, we're going to. Basically we're planning on moving from the Lakeville area down to Farmington because things are just less expensive. And one of the things I will say is there are times where it Makes sense to downsize. You know, if you've got a five bedroom house and you're looking at downsizing, yes, of course it's less expensive to take care of a home that's 1800 square feet than one that's 5000. Obvious. One of the things that you and I have found though is with interest rates and with a lot of these new townhomes is we run into a ton of people, they downsize their home specifically to save on expenses and they're spending the same amount or more because of interest rates or even if they pay cash. That town home that had a $200 HOA four years ago is now 450, you know. So one of the things I would tell people is consider downsizing, but don't just downsize. To downsize, count the costs, look at the variables. Because if you're going to pay the same and you're going to cut your square footage in half, or maybe you're now in a town home in a smaller city where the property values don't go up at the same rate, it may be worth staying in your home. So I'm kind of arguing two sides of the coin. But the biggest thing I would say is don't downsize just because you assume that less square footage lowers your cost. Look at all the variables. If you have to borrow money, look at interest rates compared to that, you know, 1.8 or 2.2% or 2.5% that you got during the COVID period. And look to say, are we moving because we just want simpler living or because we're trying to make a good financial decision? And what I don't want you to do is take on the cost of moving and end up finding out that you move to a spot that has a greater HOA or additional cost. And we see that. [00:24:45] Speaker B: Yeah, I think it sounds like a good idea to most people, like, hey, let's downsize or we don't need the additional space. But like, I just, I feel like as many people who've come through here who've done that, people who've like asked for advice on that, I feel like so many people just get it wrong and they don't do it correctly. They don't actually end up having like a real net improvement in terms of actually lowering their expenses the way that they thought they would. In fact, like, when you consider that like the cost of a mortgage today compared to what they probably have on their existing home, some of that just totally gets offset by the interest rate. [00:25:18] Speaker A: Right. [00:25:18] Speaker B: And the higher Prices today. [00:25:20] Speaker A: So, yeah, why don't you take number three? Diversify. [00:25:23] Speaker B: Yeah. So, you know, we all, we all talk about diversification and the importance of diversification. And one of the things that, you know, is difficult to measure, especially, you know, like we had somebody who just came in the other day and like, mostly I think like 70 or 80% of their portfolio was large cap US stocks. And he wanted to compare performance. And one of the things that, you know, that made the conversation actually productive was the fact that, you know, his, his portfolio outperformed a lot of diversified portfolios. Like, if you look at the last couple of years. But we, you know, when we looked at 20, 22, like, you know, he also took a much bigger hit back then. And one of the things that I did was I plugged in all of his ticker symbols, as we always do, and then compared it to one of our portfolios. And one of the things that actually made the conversation productive is, you know, we ended up talking about the standard deviation of his portfolio, which for most people, they don't want to look at risk measures like standard deviation and a million other risk measures. Like, that's just more. That's just outside of what, like, most of the conversations end up going like. But for him, his standard deviation was twice that of ours, which basically means that the volatility in his portfolio, like 68% of the time, it was going to be in a much larger range than what he was comfortable with. And I say he mostly his wife was comfortable with. So, like, thankfully, you know, like, it's not just you. If you're married, you have to consider your spouse. You have to consider their preferences and how they might feel about the risk in your portfolio. And for them, like, that actually ended up, ended up being a great conversation. And I think that overall, whether he works with us or he does something on his own or with somebody else, like, he plans to add more diversification into his portfolio. Even though if you just look at the last couple of years, the categories that represent his portfolio currently have outperformed a well diversified portfolio over time. You don't have such large fluctuations within your portfolio. And over time you have stable and consistent returns, which I think for retirees probably matter more than, you know, trying to hit a home run, but also, you know, striking out every once in a while. Like that stability ends up having, I think overall a larger or a better average rate of return over time. [00:27:30] Speaker A: Yeah, well said. Number four, invest in stocks. So allocating a portion of your retirement funds to high quality dividend paying stocks or stock mutual funds, you kind of touched on this. But one of the things I'd say is, you know, what's funny is we will have two groups of people come in. We have people that come in that we go, hey, man, you're still at 90% stock, and you're going to be drawing on these assets. We need to talk about some preservation. But we also, we don't. We really don't talk a lot about this yellow say. And I actually think it's important. We also run into people, you know, maybe 5 to 10, 5 to 7% of the time that I go, hey, we normally are talking people down from high levels of risk based on, you know, being in retirement or preparing for retirement. But there's. There's couples that I meet with that we have to talk them in to taking some risk because something scared them during COVID or something scared them when Biden got in. Now someone's scared when Trump is in. And so one of the things that we see is we see people that'll make what I would say is an emotional decision. I'm not picking on that because, you know, I'm not. I'm not near retirement. So I can't say how I would respond, because we are all more emotional with our own money. But one of the things that we see people make a mistake is they pull out. They go to cash, and now, before they know it, they've been sitting in cash for two years, four years, five years, 10 years, and they've missed out on incredible returns because they weren't in the market. So one of the things I would say to some of you is if you've gotten out of the market, let's have a conversation. Come sit in my office. Let's talk about what it looks like to get in in a way that's comfortable or as close to comfortable as possible. But we want to make sure that your money's not getting eaten up by inflation because you're sitting in a CD or a money market and now you're seeing those rates start to drop, which can be a problem for a lot of the people that we meet. [00:29:24] Speaker B: Yeah, I think that once people have made a decision to pull out of the market, or maybe they go in a much safer direction because they're anticipating another trash. Right. Like, I think we had somebody who. I mean, they called it perfectly when it came to 2008, they moved their money out at the perfect time, and they avoided all of the losses during 2008 and the crisis that we had back then, they attempted to do the same thing now and instead they missed out on like 2023 and 2024. Right. Because they thought that the crash was imminent, that we're about to have another correction. A recession is coming and it's, and it's really difficult right now today to convince them to get back in the market. [00:30:05] Speaker A: Right. And on top of that they're getting. [00:30:06] Speaker B: A decent rate of return. They, they bought some CDs, they bought some, you know, I think they have some, some money market, some of their funds in a money market fund that's paying a decent rate of return, you know, relatively speaking. Right. Not compared to where your truth have been in the market. But convincing them to get back in today when they've been anticipating a correction for the last two years that hasn't come and instead we're hitting all time highs. Like that could be the stumbling block or as Trey mentioned, like if, if you've just had a bad experience, like there's a number of people that they don't want to repeat the feeling that they had when they lost 30 to 40% in their portfolio. And like those people, you know, we all have varying levels of risk tolerance and how much risk we're willing to accept. So I know that there's a number of factors that could influence that too. Like whatever your experience has been how close you are to retirement, maybe close friends or family members that, you know, maybe, maybe the retirement that they hope to have, you know, the dignity and the, and the leisure and the standard of living, like maybe all that was taken away from somebody that's very close to you. And I realized that the market, market for a lot of people, without a whole lot of thought that goes into it, just simply represents risk. Right. And they don't want any risk at all. So we understand that, you know, people lost a lot of money in 01 and 08 and now that they're, you know, 65 years old, that might not be something that they're willing to repeat, but I think it's still worth having a thoughtful conversation on this. [00:31:25] Speaker A: Right. Number five. We actually, in my opinion we don't touch a lot on this, but maybe you feel like we do. Number five is Explorer inflation adjusted annuities. Somebody said to me yesterday, they said, man, I don't like the word annuities. And I said I get it. And I showed them in Susie Orman's book on retirement, you know, basically where she, somebody asked in the back of the book, you know, they asked questions and she responds and somebody said, hey Susie, my retirement planning advisor is recommending that I buy a variable annuity within my retirement account. What should I do? And her response is, get yourself a new advisor pronto. You know, so when I look, there are different types of annuities and I'm not going to spend this podcast educating people on all of them. But the three main ones are, one is a fixed annuity, which is really just like a CD through an insurance company. You can buy a 5, a 7 or a 10 year fixed annuity. What's nice is that you can't lose any money in that account. And I'm sure somewhere in the guidelines they talk about, you know, the importance of having an A rated insurance company so that, that it's backed but it's as safe as you can get without saying it's guaranteed. But what's nice about those is that they tell you like, hey, for the next five years you're guaranteed 5% or 7%. So we like that. The thing that we don't like about most fixed annuities is they have no liquidity, meaning that if the market drops 30% next year, we have to wait four more years to get any money out of that account. Then you have the variable annuities. Those are high fee, high commission products. If you own a variable annuity, you know, one of the things I would say is don't be too intimidated to look at it, that you don't want a second opinion. Get a second opinion. Because we also find there are some that even though they were high fee products, the guarantees and the income rider and the death benefit rider ended up working out that it paid off, you know, but get a second opinion from somebody that didn't get paid a big commission on that product. And then number three, we use something called no fee annuities. Anybody taking notes or fixed income annuities. And what I like about the no fee annuities is that people can take a portion of assets, they can invest it with an A rated insurance company that guarantees a paycheck for you and if you choose a joint payment for your spouse. We work with several companies. One of the companies that I'm a big fan of you say in that space is Alliance. Alliance is an A rated company. You know, they're over 100 years old. They, I heard, I think they had, between the insurance and investment side, they have two branches. You know, they did like 1.6 trillion this year. So they're significant in size where you look at like a New York life. I want to say is like half the size still significant. But they have products that when you start the payment, unlike your private company where it might be two grand a month, that's fixed forever, they have something that's similar to a cost of living increase on them where if the market performs well, your payments can go up every year. We had a, we've got several, you know, dozens and dozens, but recently we had somebody else, I don't remember. But you know, their second year, their income went up a couple hundred dollars a month on a benefit that, you know, was only like, I think it went from like 16 to 1850, you know, so that's nice when you look at inflation, when you have an annuity, that it has things in place that can help keep up with inflation. So if you have fixed income sources, or maybe you're thinking about do I take a pension from work and payouts or do I take a lump sum? One of the things that we see a lot of people do is they'll take the lump sum, they'll purchase a no fee annuity or a low fee annuity where them and their spouse both get that payment. But if something happens to either of them, the kids or the beneficiaries end up with money instead of the company keeping that money. And they like to look at something that doesn't have fixed income, but it has potential of growing each year as the market goes up. Anything you want to add to that? [00:35:28] Speaker B: Yeah, if annuities are of interest to you, we actually had two episodes. They were in June, I don't remember the episode number, but two episodes in the month of June that were almost exclusively dedicated to the topic of annuities. And I'm glad you made that distinction on inflation adjusted annuities. I feel like sometimes that just that alone could be a little misleading. They're not like, you know, long term care policies that have an inflation rider on those policies. Right. That is set at 1, 2 or 3%. Right. It's not quite like that. What, what you know, what you mentioned, Trey, was spot on. The fact that these annuities, that the income isn't, isn't static, it isn't fixed, it actually it's contingent on account performance. And as the account itself performs, income receives an increase or a boost. Right. So if your account has a rate of return, that rate of return results in a higher payment even after you've turned on the income, which isn't true for all annuities. In fact, I would say most people, the annuities that they have like that income is fixed. And you know, what's, what's worse than having a fixed income payment, whether it's an annuity, a pension, or anything during periods of high inflation, like, that's, that's like the erosion of your personality purchasing power. Like, that's a perfect example of that. Right. You know, it's not that it's bad to have, but, you know, in periods of high inflation, like, there's probably better alternatives. And I think that a lot of the annuity companies recognize that, and I think that's why, you know, it's becoming increasingly more popular to have an increasing income payment on your annuities, often referred to as inflation adjusted annuities. [00:36:57] Speaker A: Absolutely. Well, I'll say a couple last things just to keep our, our podcast to a reasonable rate of time, but one of the things that I think about inflation, this will seem random, but it actually hits hard. You know, we're talking about Thanksgiving's coming up and how much is Thanksgiving going to cost in 2024? You know, there's. According to a survey from Butterball, I don't know who Butterball is, but here's a survey they put out. Inflation remains a top concern with a whopping 98% of respondents expecting it to impact their holiday plans this year due to costs. So 44% expect more of an impact than last year. But over half, 52%, said that they're not going to change their menus due to inflation. My dad called me yesterday and he goes, I gotta just tell you something. I said, what is it? He goes, we eat this restaurant. So anybody in Minnesota, they know Lake Minnetonka, right around the lake, through the city called Tonka Bay. And there's this restaurant that we love. It's called Joey Nova's. If you like pizza, highly recommend Joey Nova's in Excelsior Highway 7. And there's a sandwich that we get, and it's called the Excelsior, so it's named after the city next door. And he goes, the sandwich. I ordered the sandwich and they just did a price increase and it jumped. I'm not going to be exact. So if I've got a friend that works there, owns Joey Nova's, you know, don't. Don't hold me to the dollar. Exactly. [00:38:24] Speaker B: You should still put some pressure on them to lower that price back down to. [00:38:27] Speaker A: Well, listen to this. The Sandwich jumped from $14 to $22 in a day. [00:38:35] Speaker B: $22. [00:38:37] Speaker A: And my dad was like, how did I just pay $22 for a sandwich with chips? So they literally increased the cost. What is from 14 something to 22 something. What is that, 80% overnight? And my dad was like, I'm. I don't think I'm going to buy this sandwich. [00:38:56] Speaker B: I was like, 22, five for a sandwich. I mean, that's like fine dining prices, you know. [00:39:01] Speaker A: Oh, my God. This is at a pizza place. And we love this place. And I'm, I'm going to be honest, I'm, I'm probably going to keep going because I think it's going to happen everywhere. But could you, could you. If I would have told you four years ago that a pizza place was going to charge you $22, I'll actually add this last thing. My wife and I like to doordash every so often. And you know, y'all say, I know that, you know, you guys, you don't believe in that which is, which is smarter. So if you're listening, you know, live the way of y'all say don't doordash. But we were going to doordash and we're deciding between Chick Fil A and then we found out that the Cheesecake Factory was on there. And I went to order this pasta. Chicken Alfredo pasta, right. Who doesn't love that? And I don't know the percentage increase they do for doordash. You know, we've got the membership where supposedly it's free, but they increased the price. But for Chicken Alfredo pasta, it was $32.50 if I ordered it. And I remember thinking this, honestly would have given Yellow say a heart attack. He would have explained how you could feed your whole family for half of that if you just, you know, go to. [00:40:08] Speaker B: I would have gone, I would have gone straight to the St. Louis Fed to figure out the cost increase on pasta. Is that a lot of advantager that. This is preposterous. [00:40:18] Speaker A: Oh, my goodness. We gotta wrap things up. But here's what I just want to say is that inflation's real. Inflation's a big deal. And even though it impacts everybody, if you're in and nearing retirement, it has a bigger impact on you because of the timing of your retirement. If you've never had a sit down with a retirement planning specialist that focuses on inflation, how you invest in retirement, and tax planning, this is an opportunity. Give Yellow say, and I call. We work together. Every family that works with us works with both of us. 612-286-0580. Feel free to shoot us an email, reach out to our team. We'd love to sit down with you and show you how you can inflation proof your retirement. Yela. Say anything you want to add as we close? [00:41:05] Speaker B: Yeah, maybe this doesn't matter to anybody, but inflation is real for sure. It could affect us, but price gouging is also real and unjustified increases happen. They affect you all the same. Yeah, but you know, I don't know, I don't, I don't love the, the cost of that sandwich. I just got to say that. [00:41:21] Speaker A: How about the pasta? Do you like the cost? [00:41:23] Speaker B: I don't. Pasta, Pasta is so cheap to make. [00:41:26] Speaker A: That's what I told Steph. I was like, could you imagine the, the markup on this stuff? [00:41:30] Speaker B: There's no way. Yeah. That, that's just a decision that they, they're taking advantage of the fact that everybody expects things to be a little more costly. I think. [00:41:39] Speaker A: Yeah. As the, as the owner, you're all in. As the consumer, you're against it. All right, thanks for joining us. All Things Financial. You can find us on any platform that has podcasts. We hope you have a great day and we look forward to the opportunity of meeting with you. Thanks for listening to All Things Financial. You deserve to work with retirement planning specialists who care about your money and take a unique approach to your financial and retirement needs. [00:42:08] Speaker B: Visit AllThingsFinancial.com and set an appointment today. [00:42:24] Speaker A: Fixed annuities, including multi year guaranteed rate annuities are not designed for short term investments and may be subject to restrictions, fees and surrender charges as described in the annuity contract. Guarantees are backed by the financial strength and claims paying ability of the issuer.