Money Minutes for Doctors #28: Inflation – What does it mean for me ? How do I plan and prepare? What action steps do I need to take now?
This month we tackle the topic of inflation, the elephant in the room in any discussion on what your money can do for you long term. What is inflation? It's an economics term that means you have to spend more to fill your gas tank, buy a gallon of milk, or get a haircut. In other words, it increases your cost of living. Enjoy a deep dive on this incredibly important topic with Ms. Katherine Vessenes, JD, CFP®, RFC, Founder and President of MD Financial Advisors.
About Ms. Vessenes:
Ms. Vessenes works with over 300 physicians and dentists from Hawaii to Cape Cod. Her firm uses a team of experts to provide comprehensive financial planning to help doctors build their wealth and protect their wealth while reducing taxes now and in the future. Katherine is a longtime advocate for ethics in the financial services industry; and has written three books on the subject of investment strategies. She has received many honors and awards including: numerous tributes from Medical Economics as a top advisor for doctors, multiple 5-Star Advisor Awards, honored as a Top Woman in Finance, in addition to being selected to be on the CFP® Board of Ethics. Katherine can be reached at: Katherine@mdfinancialadvisors.com or 952-388-6317. Her website: www.mdfinancialadvisors.com.
Quick Notes:
Inflation – what does it mean for me ? How do I plan and prepare? What action steps do I need to take now?
Def: When the prices of goods and services increase over time, consumers can buy fewer of them with every dollar they have saved.
Inflation is the erosion of purchasing power. Inflation is important for investment.
Bottom Line: What your money can buy today will likely be less tomorrow.
Investing for the long term: as the value of the dollar declines over time investing can help grow wealth and preserve purchasing power. Long haul stocks have historically outpaced inflation.
TIPS (Treasuring Inflation Protected Securities) are guaranteed by the US treasure and are considered to have low risk of default. TIPS are indexed to inflation to protect investors from an erosion of purchasing power. TIPS may not offer the long-term growth opportunities that stocks do but can be an effective risk management tool who are concerned about inflation.
If you have a mortgage and have not refinanced to the fixed low rates that are currently offered, do so today! This is a primary goal that should be accomplished over the next several months. The fixed rates that are currently being offered are some of the lowest ever seen and will help hold the value of your home going forward.
Historical inflation rates range; 2.36% from 1990 – 2020 to 3.88% 1970 – 2020. MD Financial averages 3.74 % inflation into their retirement calculations to provide additional protections to you and your retirement savings. If you are saving for retirement and have not considered the impact of inflation and taxes you will be in trouble! Even small changes in the inflation rate can have a large impact!
On average anticipate that you will need approximately ½ of your pre-retirement earnings to live off of and not have to change your quality of living. For exam if you earn $300,000/yr plan for $150,000/year in retirement.
Inflation will continue to impact you, your income, your purchasing power and the amount you need to save for retirement. Be aware and account for such with your savings plan.