This week on The Money Puzzle we are talking about Inflation. There are many aspects to your financial puzzle and inflation is one we can avoid. Join Chris and Eric as they discuss the effects inflation has on your financial plan and inside knowledge from our experts. NEW episodes every Saturday at 10:30 am!


Speaker 1 [00:00:20] And welcome to the money puzzle, my name is Cynthia DeFazio, and I’m joined today by Chris Bond and Eric Douglas of Family Wealth Planning Partners. Chris, how are you today?


Speaker 2 [00:00:30] I’m doing great. Thank you for asking.


Speaker 1 [00:00:31] It’s a pleasure to see you. You, too. Thank you so much. Eric, how are you?


Speaker 3 [00:00:35] Fantastic. Thanks, Cynthia.


Speaker 1 [00:00:36] God, it’s so good to see you both. And I know that you’ve been so incredibly busy. So I’m so excited about today’s show and the fact that you took the time to come into the studio because obviously when people are in their retirement years, they’re looking at it as a puzzle, if you will. So obviously, we’ve got the puzzle behind us and all the pieces and parts of a well constructed retirement plan should fit together cohesively. Like a puzzle. Correct? Correct.


Speaker 2 [00:01:02] That’s absolutely right. One of the biggest issues that people have when they’re when they’re constructing their retirement plans and goals. They’ve got lots of pieces, but they don’t necessarily know how they fit together. And that’s what a good financial plan does is it figures out how those pieces are supposed to integrate correctly in order to get the final picture that you’re looking for.


Speaker 1 [00:01:22] Sure. And then, Eric, is there one piece that they often forget more than anything else out of that puzzle?


Speaker 3 [00:01:28] Well, everyone’s unique, right? And everyone has the pieces that they focus on the most. And usually we see most of the focus that people have on is going to be on the investments, the stock market, right? What are their investments doing? Because that tends to be the thing that gets the most of the headlines. But most people tend to miss or the ancillary pieces, things like estate planning and all the other outside factors that also affect the performance of your portfolio taxes is a huge one. So we’re going to talk about a silent tax today. OK. But I know the topic of what we’re talking about today is going to be inflation. And that’s also a puzzle piece because I can have a huge impact on not only your portfolio, but your overall retirement plan and how those pieces fit together.


Speaker 1 [00:02:07] Eric, thank you so much and I’m glad that you mentioned obviously inflation because Chris, what is that? What exactly is inflation?


Speaker 2 [00:02:14] Well, there’s a lot of different ways to define it, but the layman’s definition would simply be that over time, everything that you buy is going to get progressively more expensive. That’s just basic inflation. And if you if you think about it, the issue with inflation is that the value of your dollar changes and you’ll hear accountants talking about fancy terms like time, value of money, things like that. It’s just very simple. Over time, things get progressively more expensive than an example that I’ve used with people when I’m working in workshops and things like that. If you’re, you know, let’s say, 65 or over, think about the car that you currently drive and how much that car sold for when it was new. That was probably more than what you spent on your first house. Yeah. Well, that’s an example of inflation. It’s it’s usually just a little bit at a time, historically about two point nine three percent per year over a long period of time. But that that adds up over a long enough period of time. And that’s where you get that change in value. But the big thing that I would say is you have to understand the difference in buying power value versus the amount of dollars that you have. Mm-Hmm.


Speaker 3 [00:03:27] And I’ll even add on to that to that analogy that he’s using. So he was talking about the value of a new car today. Right? The average cost of a new car today is about $47000. OK. Well, when you talk, talk about your average sixty five year old and what they probably paid for their first house, maybe in the early 80s. In 1982, the average cost of a new home was about $65000. Wow. So when you’re talking about here, he’s really not off the mark there, where it really costs about the same amount of money to buy a new car today, as it did to buy an entire house back then. That’s inflation. That’s the purchasing power of your money to even bring it back home. I mean, we look at some other examples. One example that’s personal to me. Look at the cost of college, and I’ve got a daughter who’s about to turn 18. So this is very personal to me right now. So, so we’re going through this process, and I’m very much reminded of what I paid for college and we go back to the early 2000s. I went to development university here in Louisville, Kentucky. They cost all in tuition fees. Everything room and board was about $18000. Well, my daughter supply and development as well. We’re looking at that school. It’s a great school. It costs about fifty eight thousand dollars a year now.


Speaker 1 [00:04:34] Wow. Substantially higher.


Speaker 3 [00:04:37] So we obviously need to get some scholarship money in here too as well, of course. But but when we talk about obviously inflation, that’s a real world example of really the amount of money that used to pay for things is just not sufficient in today’s world.


Speaker 1 [00:04:50] Absolutely. Well, Chris, how did we get here? What caused


Speaker 2 [00:04:54] this? Well, there’s a lot of things that cause inflation. It is naturally occurring over time. That’s just basic supply and demand of goods and services that people buy. Some of the things that have gone on over time, borrowing money. When you borrow money, that’s going to affect inflation as people desire things more. In our current world, you have changing geopolitical issues you have. The pandemic has had a big impact on on inflation and primarily through supply and demand, and that’s really what is driving inflation in our current environment.


Speaker 1 [00:05:31] Wow, that’s amazing when you think about it because obviously it creates a perfect storm when you think about it and now we’re basically in, we just have to catch up to, you know, where we were before we could


Speaker 3 [00:05:42] really call it a silent tax earlier as well.


Speaker 1 [00:05:44] That’s what I was going to ask you.


Speaker 3 [00:05:45] Absolutely. Because when you think about it, you don’t see it. You don’t see inflation like you see a tax. You know, you see a tax come out of your paycheck or you see a sales tax. Whenever you go to buy something at the store, you don’t see inflation. It’s hard to feel it sometimes until you look back at your your bank account, you know, over the last six months and be like, You know what? I’m progressively spending more money every month. This might be a problem. And it just has that. It’s a lifestyle creep. It creeps into your lifestyle and it starts to affect your ability to do things. You know, I go on vacations and spend extra money at the grocery store and take your kids, you know, out to eat and count those extracurricular things. We were talking. This is an example that just happened here this week. So Chris’s wife just got a race at work.


Speaker 1 [00:06:28] OK, congratulations.


Speaker 3 [00:06:29] Thank you. Fantastic for her, right? Yeah, it’s a one point nine percent race. OK, nothing to scoff at, except for the current inflation rate right now, as of the most recent number is about seven and a half percent year over year. OK. So when you look, we talked about the purchasing power of money. If you had $100000 in the bank a year ago today, you might still have $100000 in the bank. But the value of that $100000 is only about ninety two thousand five hundred. Wow. Worth the purchasing power has been reduced dramatically.


Speaker 2 [00:07:00] That’s the point of that value versus amount mount thing. It’s the value is no longer the same and that’s what inflation does.


Speaker 1 [00:07:07] And basically, Eric, what I’m thinking is this basically would affect retirees, most of all, because sometimes they’re living on fixed income, if you will.


Speaker 3 [00:07:15] Well, it once again, we talk about it being kind of that silent but deadly tax. It creeps in. And if you don’t have a plan in place for that to address inflation, head on and kind of build that into your cash flow analysis and your overall retirement plan, it’s something that can really have a potentially disastrous effect on the planning process for for you and you know, you and your family.


Speaker 1 [00:07:37] Absolutely. Well, Chris, I know that you and Eric have a very special offer to present to the viewers at home today. Why don’t we talk a little bit about what that is and then open the phone lines for the viewers?


Speaker 2 [00:07:47] Well, sure. If you’ll give us a call at eight four four nine zero zero five two one zero, we’ll schedule a time for you to come in and talk to us and we’ll talk about inflation and how it’s going to impact the puzzle that you’re putting together or currently working with. Then we can. Once we address what’s causing that for you, we can look at some of the options that you have on how you can hedge against inflation and stay ahead of it so that the value, the buying power that you have stays where it needs to be for you to live the lifestyle that you’re looking for.


Speaker 1 [00:08:18] Chris, thank you so much. Eric, thank you so much to the viewers at home. The phone number to call is on your screen. That number is eight four four nine zero zero five two one zero. We know that you have a lot of questions for Chris and Eric about how to plan your perfect retirement. They are offering you the opportunity to come in to have your own puzzle built with them. Again, all you have to do is pick up the phone and call eight four four nine zero zero five two one zero. We’re going to take a very short commercial break, but when we come back, we’re going to dove further into inflation. We’re going to talk a little bit about how it impacts health care cost as well. So please stay tuned.


Speaker 4 [00:08:56] How confident are you and your current financial plan, do you know with certainty how the recent market volatility will affect your future hopes and dreams? How much are you paying in taxes and how much are you losing to unnecessary high fees? You didn’t work to save this money so that you could spend your time worried in retirement. Now is the time to take charge of your finances so you can feel confident about your future. Call in during the next 30 minutes of today’s show, only to set up an absolutely complimentary, no obligation full blown financial review that will result in your own customized, written plan. This is a $999 value that we’re giving away, complimentary to the first 10 people who respond. We’ll start with a full blown analysis of what you already have by running a report to untangle how much you are currently paying in fees, how you’re allocated for risk and what it’s costing to work with your current adviser. Next, we’ll identify your goals. Where do you see yourself in the next five years? Where do you want to go? And who do you hope to go there with? Is your current financial plan set up to get you there without mishap? Let’s design a roadmap to create a financial plan you can follow with confidence. Get the peace that so many people are missing from their retirement. Find out how having a written plan can make a difference to your retirement dreams. Call now to schedule your complimentary no obligation. Full blown Financial Review today.


Speaker 1 [00:10:31] And welcome back to the money puzzle. My name is Cynthia DeFazio, and I’m joined today by Chris Vaughn and Eric Douglas of Family Wealth Planning Partners. Gentlemen, a wonderful show we’re having today talking about a very important topic inflation and how it affects retirees, specifically overall. One thing I’d love to talk about in this segment would be the rising health care costs tied to inflation. Chris, your perspective on this?


Speaker 2 [00:10:55] Well, you’re always going to have a higher inflation rate in health care than you would in the rest of the economy over a long period of time. Obviously, that’s different from one year to another. And the reason for that is the advancement of technology. We want drug companies to come up with better and newer drugs to deal with the things we want manufacturers to come up with better equipment for physicians to diagnose and treat all the different conditions that we can have. Well, with all that research, there’s a lot of money that goes into it. Well, that money comes from paying for those services. So over time, that’s going to cause that that that price of health care to go up. And traditionally, it does go up a lot faster than your regular inflation that you use on regular goods and services. I believe the last statistic that we saw was it was around three point nine percent year over year over the last 20 years. That sounds right


Speaker 3 [00:11:50] for for health care services,


Speaker 2 [00:11:51] for health care. So it is faster than the average inflation rate and you have to build that into your plan. Otherwise you’re going to have some problems paying for health care down the road.


Speaker 3 [00:12:01] And for reference, that’s about twice the rate of regular inflation, right? So regular inflation, general inflation that the number that usually gets the headlines on the news that’s that comes from the CPI, the consumer price index. It’s a very broad generalized number. They basically look at food and non-food and energy to be very, very broad. So those are the three categories. Now each category has subcategories. So when you talk about food, you can see fruits and vegetables and dairy and meat. So each one of those subcategories is going to have its own inflation number. Same thing when you look at that category for non-food and non energy items, you know, health care is included, but that’s just one aspect of it. But when we’re talking about building a retirement plan for retirees, what are the largest expenses that they have in retirement? Number one or two is usually going to be health care. It’s usually taxes and health care. You can’t avoid either one of those and you’re going to have to pay for health care at some point. So if we’re having to plan for the cost of health care rising, it basically double the amount and the general inflation rate. We need to make sure we’re building that in.


Speaker 1 [00:13:06] Absolutely. And is that something that people often fail to talk about when they’re coming into the office for the first time? Or are they forgetting about what inflation could look like for their overall retirement?


Speaker 2 [00:13:16] I think the average person that comes in, they do recognize that health care is going to be a major expense. What they don’t see is the fact that the inflation rate of that expense is going to grow to Eric’s point at a faster rate, historically about double what the other inflationary things that they’re going to deal with. So that’s the kind of get it that they don’t get it as deeply as what they need to.


Speaker 1 [00:13:38] OK.


Speaker 3 [00:13:39] And even and even it’s also interesting as well because they understand inflation, but they don’t truly understand the impact of what inflation is going to look like in 20 or 30 years. Yeah. And so if you have an average retiree coming in and let’s say they’re looking to retire at 65 years old, but we’re still planning for them to live for another 25 30 years. So we have to plan for inflation in 30 years. And what is that number going to look like? And are we going to have enough money in your cash flow analysis to be able to cover the cost of not only, you know, run of the mill health care needs throughout the entirety of your retirement, but we also need to plan for things like long term care? Sure. We keep talking about health care, but long term care is a monster. Oh yeah. The average cost of long term care for an in-home service is over $50000 a year.


Speaker 1 [00:14:26] Nash, now 50000.


Speaker 3 [00:14:28] Yeah, absolutely. And so we talk about inflating that number more than double the rate of regular inflation. But that number can look like potentially in 15, 20, 30 years that that number tends to blow people away when we illustrate that within the context of their overall retirement plan.


Speaker 1 [00:14:46] Sure. Absolutely. Chris, what are some things that people can utilize to help offset inflation? What are some hedges that you can put up, if you will?


Speaker 2 [00:14:54] Excuse me, the main thing is that, you know, we go back to that conversation of value versus amount. How do you make your the assets that you have that you’re going to use to pay for whatever it is that you want, be it health care or it groceries? Mm-Hmm. How do you make that money grow at a faster rate than what inflation is? Yeah. Well, the most obvious play on that is investments in your traditional stock market type thing. So stocks, bonds, mutual funds, ETFs, things of that nature. You just have to remember when you’re dealing with the inflation part that it has to grow at the same. Her faster rate than inflation to have the same buying power. A lot of retirees especially get a little bit in trouble when the markets are not doing well and they tend to panic and they say, Well, I want to go into cash. Well, that makes a lot of sense when you’re only looking at that one piece of the puzzle, when you’re only looking at the fact that the stock market’s not doing well right now, cash is good, but cash is not growing as fast as inflation is. So there’s there’s one of the hedges is using traditional investments in order to stay ahead of that.


Speaker 1 [00:16:02] Would that also be annuities, Eric?


Speaker 3 [00:16:04] Well, annuities are going to fall more on kind of the nontraditional, you know, asset classes when we’re looking at other types of things that you can use to hedge against inflation within a portfolio. Obviously, we have your traditional security stocks and bonds on the nontraditional side. You have things like like real estate, commodities, gold, silver, very popular topics. See a lot of commercial rights about those these days, but things like commodities and also annuities are certainly a part of that. Each one of those nontraditional asset classes is going to have its own pro and its own kind. So you have to look at those different pros and cons within the context of your overall retirement plan and what’s most appropriate for you as it relates to annuities specifically. You know, you can. There are a number of pros with annuities and other different different types of insurance products. Specifically, you can get usually some type of a fixed rate of return over a certain period of years. That’s fantastic. Now we’re also in an historically low interest rate environment, although the Fed is starting to signal the, you know, it’s going to raise rates this year, so that may not be the case for too terribly much longer. But is that fixed rate of return going to be enough to offset the rate of inflation? Now, on the flip side, some of the pros is there’s no downside. Right? Yeah. And so, you know, you have to weigh all these different pros and cons with all of these different traditional and nontraditional asset classes to make sure that they’re going to be appropriate for what you’re trying to do within your plan and what your goals look like?


Speaker 1 [00:17:33] All right. And Chris, is it important then to be very diversified when you’re doing the overall plan to make sure that all pieces and parts are going to fit together in that puzzle?


Speaker 2 [00:17:41] Yes, diversification is extremely important to Eric’s point. When you’re talking about an annuity, for example, those have pros and cons the, you know, the pro on that particular case. You get that in some cases, fixed rate of return. But the Con is your money’s illiquid. So yes, you want to diversify that. Eric mentioned real estate. That’s another thing that you can do. The Pro is historically the real estate markets have stayed ahead of inflation. The Con is also it’s a liquidity issue. You can’t get your cash out of real estate rapidly like you can with some other things. So it is important to have almost a little bit of everything type of strategy. But that’s where you have to make sure that you have the right ratios to accomplish what the goal is that you’re trying to accomplish.


Speaker 1 [00:18:28] OK. All right, Chris, thank you so much. Eric, I know that you and Chris have a very special offer to present to the viewers at home today. Why don’t we talk about what that is again before we reopen the phone lines?


Speaker 3 [00:18:38] Yeah, no, absolutely. Thanks, Cynthia. So have you noticed the creeping silent taxes, inflation invading your portfolio? Have you noticed that you’re spending more and more every month in the last couple of years on just regular everyday items? Is it starting to affect your overall lifestyle? Not only that, is it affecting your overall portfolio? We’d love to have you come on and give us a call eight four four nine hundred five to one zero. Bring your portfolio into us. We would love to do a portfolio review with you and go over the details of all the different puzzle pieces that you’ve got help you put those things together in a nice, neat picture for you to completely understand. And we can also make sure that you’re well diversified in your portfolio and that you’re also ready to attack inflation head on over the next few years.


Speaker 1 [00:19:25] Eric, thank you so much, Chris. Thank you so much to the viewers at home. The phone number to call is on your screen. That number is eight four four nine zero zero five two one zero. We know that you have a lot of questions for Eric and Chris about how to plan your perfect retirement and how your puzzle pieces are going to fit together. All you have to do is take advantage of calling in today. Eight four four nine zero zero five two one zero. We’re going to take a very short commercial break, but don’t go anywhere if I have so much more about inflation and the future years ahead. When we return


Speaker 5 [00:19:58] as a good saver, you’ve been putting away money during your working years. Studies find that the biggest fear of retirees is running out of money. Market volatility isn’t just a downward movement of stock prices, it’s the size and frequency of change. The more dramatic the ups and downs, the higher the volatility. This can put savers who are newly retired or a few years away from being retired at greater risk. Today’s generation of retirees is not receiving traditional pensions as our parents or grandparents did. Instead, we have a retirement account such as 401Ks or 403 B’s. These accounts typically exposure money to market risk. The last thing you want right before retirement is to lose a portion of the money you need for income. But how do you turn these accounts into a retirement income? Is it safe to keep all your retirement money sitting in the stock market? The last thing you want is to lose a portion of the money you need for income due to market loss by working with a financial professional. You can learn how to turn a portion of your savings into an income stream for life and income for the life of your spouse if you’re married. We all have moments in our lives when we wish we had taken action sooner. Don’t let procrastination reign on your retirement parade. Act now before it’s too late. Please call our office to set up your no cost, no obligation. Retirement Income review today.


Speaker 1 [00:21:25] And welcome back to the money puzzle. My name is Cynthia DeFazio, and I’m joined today by Chris Vaughn and Eric Douglas of Family Wealth Planning Partners. Gentlemen, a wonderful show we’re having today talking about very important topics all surrounding, of course, the money puzzle and putting it all together. Want to talk a little bit about just the overall planning process, the different pieces and parts? Eric, if you will. What does the what do those look like? Let’s unpack that a little bit.


Speaker 3 [00:21:52] Well, there’s so many different pieces and parts that you have to account for whenever you’re putting together a financial plan. But I want to make sure we reiterate, first and foremost that the number one thing you can do to hedge against inflation is to plan. It’s not any one specific stock or bond or annuity or products or anything else out there. It’s an overall plan. You have to have a plan in place and be prepared for the inevitability of inflation within your portfolio. We’re going to experience it every year. Right now, we’re experiencing it pretty bad. Yeah, it’s been pretty bad the last couple of years and we probably will be over the next couple of years as well. But we were due to be perfectly honest. We’ve had historically low inflation really over the last decade. So we’re just kind of catching up a little bit.


Speaker 2 [00:22:38] OK.


Speaker 1 [00:22:38] There you go again. Is the perfect storm all at once.


Speaker 3 [00:22:41] But when we talk about planning, you know, typically the cornerstone of every retirement plan is Social Security because everyone thinks, well, that’s the income that I’m going to get for my lifetime. So there’s a cost of living adjustment with that, right? That’s going to keep up with inflation. Well, OK. I just told you, the most recent rate of inflation is about seven and a half percent. The most recent cost of living adjustment on Social Security was about five percent. Wow. It doesn’t always keep up with the true rate of inflation. And another thing to consider if you’re getting more and Social Security over here, there’s a cost of living adjustment in Social Security. But most people forget there’s also a cost of living adjustment and something else that you’re having to pay for, which is your Medicare premiums. So you might get a little bit more money over here, but you’re going to have to pay it out back over here. So when we talk about planning and the inevitability of inflation, we have to account for modest, probably more modest cost of living adjustments in Social Security, and we have to account for getting the difference elsewhere within your portfolio.


Speaker 1 [00:23:41] OK. All right, Chris, I should ask you how long does it take to design a plan for someone when they come into the office? It sounds like it’s quite complicated all those pieces in the puzzle.


Speaker 2 [00:23:52] It is pretty comprehensive. OK? I would say on average typically takes somewhere in the neighborhood of four to five meetings as you’re going through developing out the initial base plan with the client. We have to get to know you. We have to get to know, you know, what it is that you’re trying to accomplish. Everybody’s unique. My goals and your goals are not the same, right? So we have to get to where we’re understanding that. Then we have to look at the pieces of the puzzle that you already have. It’s a whole lot easier to work with something that you already have than it is to create something new. So let’s find how those different puzzle pieces go together. That’s a couple of meetings right there. Sure. So generally, four to five meetings to kind of get that base plan out over, you know, a month or two depends on the client. Some people want to go faster than others. But the real work of the plan is not the initial part of it. It’s meeting on a very regular basis and going over that plan, reviewing what’s going on. What did inflation do this particular last six months or a year? And how do we need to make those adjustments? And that’s where the real meat of the plan happens is over that long period of time.


Speaker 3 [00:25:01] All right. There’s a reason we call it planning something very specific. We don’t put together a financial plan and and since you’re on the way, planning, it’s an ongoing, never ending process. Right? The things that we were talking about a few years ago were not nearly as correlated to inflation as they are today because inflation is a much bigger topic at this point. It’s affecting everyday Americans in a far greater way than it was just two or three years ago. Yeah. So it’s an ongoing thing that that’s why we meet with clients throughout the year, year over year over the course of their retirement to to make sure that we are always staying on top of what’s going to be the most appropriate solution for their portfolio to to hedge against inflation.


Speaker 1 [00:25:40] Absolutely, Eric. Thank you so much. And then, Chris, do you recommend that people come in quarterly twice a year, once a year? What is


Speaker 2 [00:25:47] it? It’s a little bit different, but we do recommend about every four months. OK. And the way that we design it is early in the year, we’re talking about a review of the of the the plan itself. And that’s where we go back into the estate plan and find out if things have been or things have changed so that we need to update beneficiaries or maybe some of the estate documents. And then the next meeting during the year, we focus specifically on the portfolio. Is it staying ahead of inflation? Is it doing what it’s designed to do? A lot of people want to go out and they want to chase returns. I want my portfolio to grow at this. Right. Well, why would we want to take on more investment risk than what is necessary to accomplish the goals of the plan? So we go back in and we make sure that everything is working together correctly, that those those pieces are still fitting, OK? And then and this is another huge one that people tend to overlook taxes. Yes. So then later in the year, we go back and we review the tax situation and how are ways that we can we can put everything together in such a way to minimize your taxes over a lifetime. You know, a lot of people want to get the biggest return that they can this year. Yeah, we’re looking at a much longer timeframe because we want to pay the least that we possibly can over that time frame. So that’s typically we like to meet about every four months. There’s some individuals that are different. Some people need a little bit more. Some people need a little bit less. And that’s fine.


Speaker 1 [00:27:11] Thank you, Chris. Eric, we have less than a minute left of the show this week. Any final words of wisdom and advice you want to give the viewers at home?


Speaker 3 [00:27:18] Well, I think the most important thing is, do you have a plan? If you do have a plan, bring it into us and let’s have a chat about how well protected you are against the inevitability of inflation within your overall portfolio. We have to discuss that with you and of course, how we can adjust your portfolio to make sure that we are properly hedging against the risk of inflation, you know, within your portfolio, within your overall puzzle.


Speaker 1 [00:27:41] Eric, thank you so much. Chris, thank you so much to the viewers at home. Most specifically, thank you for spending time with us today. That number is eight four four nine zero zero five two one zero. Be safe. Be happy, be blessed. We’ll see you next week on the money puzzle.