Breaking Down Inflation

By Dean Barber

July 15, 2021

Breaking Down Inflation

Key Points – Breaking Down Inflation:

  • June 2021 Inflation
  • Breaking down historical inflation
  • Planning for inflation
  • Stress testing for high inflation
  • 24 minute read | 37 minutes to listen

Taxes and inflation. These are the two largest wealth eroding factors when it comes to your retirement. We see people all the time using an inflation rate in their financial plans well below what it should be. Join Dean Barber and Bud Kasper as they break down inflation historically and inflation today.

Complimentary Consultation

Article: Lumber, Commodities, and Inflation Fears

Download: Retirement Plan Checklist

Podcast: The Guided Retirement Show Episodes

Breaking Down Inflation

Dean Barber: Thanks so much for joining us here on America’s Wealth Management Show. I’m your host Dean Barber, along with Bud Kasper, and it’s heating up, Bud.

Bud Kasper: Are you talking about the summer?

Dean Barber: I’m talking about inflation.

June Inflation

Bud Kasper: Unbelievable, isn’t it? What a number that just came out in June.

Dean Barber: Yeah, 5.7%. Here’s the thing. So we want to break down inflation for you today. We want to talk about why the stock market is nervous about inflation, why it should be nervous about inflation. We’re going to give some opinions on whether or not inflation is here to stay. Is it transitory, as Jerome Powell was saying, or is it more of a threat? So we’re going to try to break it down as much as we can.

I want to encourage you, though, if you want to read about this, we have a fantastic article written by Shane Barber, and it’s called Lumber, Commodities, and Inflation Fears. This article breaks down inflation in detail with charts that we can’t show you here on the air.

Inflation Historically

So Bud, let’s go into history to start our conversation on inflation. You and I were talking before we got behind the microphones here, and we were saying the only frame of reference we have on inflation is what we can study.

Bud Kasper: Right, history.

Dean Barber: History. Because even though you started in the industry in 1983 or ’84?

Bud Kasper: 1983.

Dean Barber: I started it in 1987. Inflation was already behind us. We had those high inflation years in the late 70s and the early 80s. Still, when Volcker came in and raised interest rates through the roof. He basically killed everything, stopped that inflation, sent the economy into a recession in 1980. Then it slowly came back out of it, and we had some amazing things happen.

Volcker & Friedman

Bud Kasper: The famous economist back then was Milton Friedman, if you remember. He and Paul Volcker had discussions about how to handle that situation at that time. It was painful. 

But that’s sometimes what you have to experience to get things back to where they need to be because of the inflation rate we experienced during poor Jimmy Carter’s time. Who gets so much credit for this, and it’s probably not all his. 

Rates in the ’80s

Nonetheless, it was stunning how incredible inflation was at that particular time and what CD rates were.

Dean Barber: Well, you could get a ten-year CD in the early ’80s, paying 15.5%. Imagine that.

Bud Kasper: Right. But then, if you look at what the inflation rate was, your real take-home was practically nil.

Dean Barber: Right, your real investment back then would have been a 30-year treasury. Do you know what I’m saying? Because you had some pretty incredible rates on the 30-year treasuries. And what happens to those 30-year treasuries is it actually appreciates in value as rates begin to fall. So that was your real win back then.

Bud Kasper: Sure, and investors are saying, “Boy, I’d love to have that experience one more time.” No, you wouldn’t.

Dean Barber: You really don’t.

Bud Kasper: You don’t remember the price of eggs, housing, gasoline, and everything was at the time. It was just entirely out of sight. Of course, a question right now is could we have a repeat of that? No, I don’t think that’s in the cards at all. However, some things are concerning. When we go back to the focal point of all this, what is it? It’s the Federal Reserve.

Breaking Down Inflation in the ’70s and ’80s

Dean Barber: Well, let’s talk about what caused the inflation in the late ’70s and the early ’80s, Bud. There were a number of different factors behind it, and Jimmy Carter is not one of them. He just happened to be president at the time that these things occurred.

Here Come the Baby Boomers

Now you and I have both studied with a gentleman by the name of Harry Dent. He talks about the demographic trends and the Baby Boomer generation happening in the late ’70s and early ’80s. Until the Millennials, the Boomers were the largest generation in history was coming out of college, getting married, buying houses, having babies en masse.

For nearly the first time in the history of the United States, both husband and wife worked. You had dual incomes. On top of that, you had almost the invention of revolving credit. So it wasn’t just dual incomes. It was dual incomes plus revolving credit that people could go out and spend more than what they made, causing this massive demand on everything, and the prices just shot through the roof. So it was a demographic deal, not a Jimmy Carter deal.

Bud Kasper: Yeah, that was the perfect time to see the correlation between demographics and what was happening in the economy. People needed to readjust their thinking. You’re right, Dean. After we came back from World War II, victorious, men came anxiously back home, met their ladies, married them, start their formation of the houses, but you’re right, the ladies were still in the house.

It was the boomers who all of a sudden came out and said, “Hey, we’ve got almost as many women as men that are graduating from college. We have the capability of having a dual income, sometimes excellent dual incomes.” Of course, that was thriving in the marketplace because what happens with that market? No different than the demographics you’re talking about. Money is going into the economy, purchasing things that they need to form their families.

Lost Decades

Dean Barber: Now here’s what’s interesting about that, Bud. You had that happening, yet you can go back to 1969 and come all the way to 1980, and you have basically a stock market of zero. That was the second lost decade after the decade of the ’30s, and then you had the lost decade of the 2000s. So you had three lost decades when it comes to returns to the market. But the interesting thing was valuations in 1980, when rates got raised through the roof by Volcker, were nowhere near where those valuations are today.

Planning for Inflation

Dean Barber: All right. So, Bud, when we have people come in for complimentary consultations and talk to them, people sometimes have a plan.

Bud Kasper: Sometimes. Right.

Dean Barber: It’s pretty rare, but sometimes they do. And the ones that do, what we see as the biggest mistake in those plans is that they’re using a 2% to 2.5% inflation rate. Now that may have been what inflation was over the last, say 15 to 20 years, because it’s been pretty non-existent, but that is not what you want to project into the future.

You want to use the long-term historical norm. And we typically use 4% as that inflation rate. People don’t understand that if you move from a 2% to 2.5% inflation in your plan to a 3.5% or 4%, it makes an unbelievable difference in your probability of success. And not in a good way.

Bud Kasper: Right. And the other factor associated with that, of course, is taxes. You are looking at the two biggest eroders of wealth, inflation, as you just said, and taxation. So what do we need to do? Focus. Focus on what those can do to the success of your retirement if you’re not doing it right. In fact, Dean, we have healthcare that we’re doing, and I think it’s 6.5%?

Dean Barber: Yes, we are.

Bud Kasper: Something like that.

Dean Barber: Yeah.

Planning for Different Types of Inflation

Bud Kasper: So certain aspects of the plan deserve a different factor in inflation.

Dean Barber: Yeah. Yeah, we’re inflating healthcare at six and a half percent. Now, of course, if you retire and you’ve got a mortgage, your mortgage isn’t going to inflate. So, we leave that at the same level. We want to know how much you’re spending on travel. What are you spending on fuel, food, and different types of things?

So we can take all those other things, and we can do the research and say, okay, what inflation rate are all of these things happening at? Do it like that in the plan. If you do that, you will have a much more realistic view of your future.

Bud Kasper: Sure. As an example, couples retire, and they’re asking, “Both the cars are kind of old. When are we going to replace them?” So we come up with a date, a year, if you will, that they think they’re going to go and replace those. Well, look at the inflationary factor with what’s been going on in the auto industry.

Dean Barber: Yeah.

Bud Kasper: It’s a little fickle from time to time in terms of what the actual numbers turn out to be, but if you don’t put that in the plan and then inflate that so it’s five years from now, so okay, I’m going to buy a car for $35,000. By the way, good luck. But with that, you put it out five more years, that might be up to $39,000.

Dean Barber: Or 40 or 45, or whatever. Right?

Bud Kasper: Right.

Current Valuations Compared to the ’80s Inflationary Environment

Dean Barber: So, earlier, Bud talked about how the stock market reacted the last time we had a high inflationary period. And then the Fed started raising rates. And that was in the early 1980s. Valuations back then are nowhere near where they are today.

We did a show here about a month ago on the current market valuations. And we talked about how high those valuations are. They are the highest that you and I have ever seen them. And we can go back even into the 1929 market crash, and valuations weren’t as high back then as they are today.

So we have seen massive amounts of money. And in fact, we’ve seen some record inflows into the equity markets this year. And the reason is that there’s no other alternative.

Bud Kasper: Right. 

Dean Barber: We see the 10-year Treasury as we speak here at 1.36%. Okay? Now it began the year at 1% and went as high as 1.72%. Now it’s at 1.36%. Bud, what that tells me is that the bond market doesn’t believe that inflation will be here long term.

The bond market is believing Jerome Powell that this is a transitory inflationary environment. 

Transitory Inflation

Bud Kasper: To make sure our audience understands the words you’re saying when you’re talking about transitory, it simply means short term. So with that in mind, and Jerome Powell is sticking to his guns in this case. He’s essentially saying, “We’re going to keep feeding this kitty. We’re going to continue to try to keep interest rates low.” And if that continues down that path, I think we should see an equity market that should be okay.

Again, going back to what we said once before about the two rotors of wealth is inflation and taxes. All that we have to pay attention to, and I have to admit, bothers me when we look at some of these inflation factors and ask, is this a trend, or is this a one-off? 

If Powell has his way, and we don’t get the temper tantrum that we had in 2013, which allowed the stock market to crumble, I don’t think that’s going to happen, Dean. I believe that it will continue. Now our path may not be as dynamic as what we’ve experienced, and it shouldn’t be because we’re coming off of COVID.

Dean Barber: Yeah.

Bud Kasper: The reaction there was because of the stimulus and other factors, valuations being the main one; we’ve had a really nice move in the stock market.

What if Inflation Isn’t Transitory?

Dean Barber: We’ve had a very nice move in the stock market, but again, that’s my biggest fear, Bud, is if Jerome Powell and the bond market is wrong and inflation is here, and we see that 10-year Treasury move to two, to two and a half, to three, to four, four and a half percent, money is going to flow out of equities in a very, very big way.

When there’s more money flowing out of equities than flowing into equities, it’s the same effect as if you have everybody wanting to sell their house at the same time and there are not enough buyers out there, right?

Bud Kasper: Right. Exactly.

Dean Barber: You’re going to see price contraction. And with equity valuations as high as they are today, I hope Jerome Powell is correct because if he’s not, we’re going to see a contraction in this market that will not be a pretty one.

Bud Kasper: Yeah.

Dean Barber: That’s my opinion. Okay?

Bud Kasper: Well, you’re looking at 21 times earnings, meaning the earnings of versus the stock price, which is historically high. And of course, if we do have the contraction, that will come back down. So maybe now it’s at 19 or 18 or 17. And that makes the market look more attractive at that point. And here we go with the cycles.

Understand How Your Plan Would React to High Inflation

Dean Barber: Right. Right. So here’s the thing. You need to understand what you own today. And then, the critical thing is to know how what you own today would be impacted in a high inflationary environment. What would it do? And so we basically can take that and go back into the late ’70s and early ’80s and show you how the types of investments you have today would have reacted.

Then you could say, you know what, if you like what you see, it’s okay. If you don’t like what you see, we can then start to talk about some alternatives of how you can preserve the wealth that you’ve accumulated because to me, Bud, it’s not about how much you make. It’s how much you keep.

Bud Kasper: That’s right.

Additional Education

Dean Barber: Also, don’t forget to look at the article on Lumber, Commodities, and Inflation Fears and get the Retirement Plan Checklist because that’s critical too.

Bud Kasper: Yeah. I’ll add to this that Shane Barber, now I can speak in terms of the fact that he’s your brother, but he is one of the best financial writers I’ve ever come across. And he has a natural talent for making it entertaining while giving you the facts you are reading the article for.

Dean Barber: Yes.

Bud Kasper: The one he did on lumber and everything was good for me to go in and revisit some of the points he made. Excellent reading; every retiree or future retiree should be reading these articles. It’s all educationally based. That’s what we’re about.

Dean Barber: Well, and that research he puts into the articles as he’s writing them. We sit in the same group, Bud, in our writing team meetings, discuss what people need to understand, how we approach it, and how we get it out to them. We’ll decide on topics months in advance to get time to do the research and get the pertinent information out to people. 

Danger Zone

Dean Barber: Those who are reading this online didn’t hear the Highway to the Danger Zone. It reminds me of Top Gun, Bud, and I envision Jerome Powell as Maverick and Joe Biden as Goose.

Bud Kasper: Well, you remember what happened to Goose? You know the new version’s coming out relatively soon?

Dean Barber: Yes.  

Bud Kasper: How many years ago was that? 20?

Dean Barber: 20. 

Bud Kasper: At least 20. 

Dean Barber: Well, no, it was 1983 it came out.

Bud Kasper: Oh, it was? My gosh.

Dean Barber: Yes, the year you started in the industry.

Bud Kasper: Industry, Yes. Unbelievable.

Dean Barber: The reason I put Powell and Biden in there, of course, Biden probably wouldn’t understand that he was in an airplane, but Powell’s, he’s navigating the danger zone right now.

Bud Kasper: He is.

There is No Alternative

Dean Barber: I mean, if we get inflation because the Fed stays too easy for too long and you get bond prices or bond yields starting to increase in a significant way, money’s going to flow out of the stock market. The money is flowing into the stock market because there is no other alternative, right?

Bud Kasper: Exactly. Yes, you have to remember when interest rates rise, the dollar value of bonds goes down, so it is a danger zone. It is a tight rope that he’s walking right now. The FOMC, the Federal Open Market Committee chairs with all the other heads of the Federal Reserve banks across the United States, is trying to bring as much clarity to the situation as possible. Still, the reality is we never know whether or not the policy is going to work. 

It’s fair to say what they’ve done so far was working. But remember what we came out of, COVID. Therefore, having an easing policy on quantitative easing has only ignited, if you will, the recovery that we’ve seen in the last 24 months almost at this time.

Supply, Demand, and Inflation

Dean Barber: There’s a phenomenon going on that I think is causing a lot of inflation. First of all, you had a rapid spike in demand, and that spike in demand was met with a shortage of supply.

Bud Kasper: Exactly. 

Dean Barber: Remember, people were out of work. We weren’t producing. We weren’t doing anything! So, the supply chain got totally wrecked. And so when there’s a shortage, and there’s a high demand, guess what? They’re going to ask to pay more.

Bud Kasper: Right. Now people aren’t spending money, and you know how Americans love to spend money, so now they had to invent ways to do it. Here we come with the internet. Here we come with being able to have food brought to your front door rather than having to get out and all that. It’s the invention of necessity that comes into play in that kind of situation.

The Housing Market

Dean Barber: Right. On top of that, there’s a ton of inflation in the housing market, right? 

Bud Kasper: Oh, yeah. Because of lumber and all the wallboards, et cetera.

Dean Barber: Well, I think the biggest reason why we’ve seen the explosion in the housing market. In my opinion, there are two reasons. 30-year mortgages were available at 2.5% to 3%. Okay?

Bud Kasper: Historical.

Dean Barber: I mean, I look at that, and that’s almost free money.

Bud Kasper: Yeah. 

Dean Barber: People are looking at that and saying, “Well, why would I not move into a bigger home because I’ve got a 4.5% mortgage now?” We thought back when mortgage rates were 4.5%, that was great.

Bud Kasper: Yes, right.

Dean Barber: But now here we are at historically low mortgage rates, and so people are just like, “I’ll buy. I’ll buy, I’ll buy.” Because people are leaving the coast, California, New York, and they’re moving to Texas, to Arizona, to the Midwest, to Florida. 

It’s exploding the real estate prices. You put that on top of that. These mainly were cash buyers because they’ve got tremendous amounts of equity from when those housing markets blew up.

Millennials Buying Houses

Dean Barber: Then, you’ve got the millennial generation starting their family formation years, and there are 76 million of those. They’re now saying, “We’re not raising a family in an apartment.” Okay?  “It was cool while we were in our twenties, but now that we’re in our thirties and we’re going to have babies, we’re going to go out and buy a house.” 

Now you have many people buying their first home, people moving, and ultra-low interest rates. It’s a perfect scenario to have the housing prices skyrocketing.

Bud Kasper: Yes. And somewhat of a contradiction is the fact that you have house prices increasing, interest rates low. You want to get the low-interest rate to be able to buy up in your house, but is the value going to continue to be there that just accelerated? 

What’s Happening with Lumber?

As Shane wrote in one of his articles and just using lumber as an example, the inflation rate on lumber was out of whack because of what you just said, supply. If you don’t have supply, if they’re not ready, if they can’t get the goods and this is happening still today, if you can’t get them, then you can’t build it. Therefore, things get tighter, and therefore prices elevate based on that. 

Dean Barber: Yes. An interesting article in The Wall Street Journal back on June 15th about people hoarding lumber. They were buying more than what they needed because they thought there would be a shortage in the future. What did that do? It exacerbated the problem and created the lack because now you’ve got people that don’t need the lumber, it’s sitting there, and it’s not for sale.

Bud Kasper: Yes. That probably will continue, so you’re going to see that availability is coming back in, and now the prices will come back down again, et cetera, et cetera.

Dean Barber: Well, we’re starting to see that. What this article talked about is that now those people finally see the shortage. What are they doing? They’re flooding the market with the shadow inventory, and now you’re starting to see those lumber prices drop significantly.

Bud Kasper: Oh, I like that, shadow inventory. I haven’t heard that phrase. You heard it here, folks.

The Fed is Navigating the Danger Zone

Dean Barber: All right. Here’s the thing, what we’re talking about is complicated. What we’re talking about with Jerome Powell navigating through the danger zone is very, very real, and it’s something that you have the responsibility as a person that’s in charge of your household wealth and the security of your future. 

You have the responsibility to understand how what Bud and I are talking about here today will impact you if Jerome Powell is wrong and this inflation is not transitory, but in fact, it’s here to stay. You need to figure it out, understand it. Understand what you have today would be affected, and you need to know that there are alternatives to every scenario that you can think of.

We can help you navigate these rough waters. We can help point you in the right direction. Our goal is to provide clarity, confidence, and control to you in your financial life. Take a look at Lumber, Commodities, and Inflation Fears, as well as the Retirement Plan Checklist. 

Bud Kasper: That’s the point of the show, is to provide educational opportunities for people. But the only way you can take advantage of it, ladies and gentlemen, is to come to the website and poke around, see what we have there. There’s excellent content on a wide variety of different topics related to, of course, retirement and taxation, inflation, et cetera.

Increased Taxes is Like Inflation

Dean Barber: All right. Increased taxes is like inflation. 

Okay. If we do have inflation, Bud, and at the same time we have an increase in taxes, what’s that going to do?

Bud Kasper: Yes, we’ve said it. They’re the two biggest eroders of wealth, inflation, and, of course, taxation.

Corporate Tax Rates and Prices

Dean Barber: Right. What about corporate profits if we get the G20 together and agree on a minimum 15% corporate tax?

Bud Kasper: My take on that is that they’ll adjust. If that’s what they have to bite off to be able to continue to do their business, but all it’s going to be is inflation there, isn’t it? They’re going to get the money back.

Dean Barber: My point is that.

Bud Kasper: Right.

Dean Barber: They’ll raise the prices to keep their profits where they want them. 

Bud Kasper: Exactly.

Dean Barber: I don’t understand where our politicians don’t get that.

Bud Kasper: Well, they don’t, so mark that in the book.

Dean Barber:  I mean, it’s pretty simple math.

Bud Kasper: Yes, it is.

Dean Barber: Right? If your price of meat goes up, you’re going to charge more for your hamburgers.

Bud Kasper: Right.

Dean Barber: This is the same thing.

Bud Kasper: Yes.

Dean Barber: In this instance, the price increase is an increase in taxes. 

Bud Kasper: Yes.

Dean Barber: I’d say be on the cautious side and prepare for the higher inflation. Get yourself in a position where you know what’s going to happen.

Looking into History Again

Dean Barber: Bud, earlier in the show, we talked about how the only frame of reference that we have for dealing with a high inflationary environment is research. It’s history because we were not in the business the last time we had inflation. 

You think about it, you’ve been since 1983, so that’s 28 years. All right. I started in ’87. So the entire time that you and I have been in this business, we have not seen those high inflationary spikes like what was happening in the late ’70s and then into the 1981 and ’82 era.

Bud Kasper: Right.

How Inflation Affected the ’80s

Dean Barber: So we can go back and look at history and say, what did it do and how did that affect real estate prices? How did it affect commodity prices, people’s standard of living, the stock market, or the bond market? We know it because we’ve studied it, but we’ve never lived through it.

Bud Kasper: Right. I think the power of what the Federal Reserve represents to our country’s economic success is unprecedented. Probably more of a factor now than we’ve seen in other periods. 

The Federal Reserve and Keeping Rates Low

I keep going back to 2013, to the Taper Tantrum that the stock market came in and then lost money because the Federal Reserve announced that they would no longer be doing their bond purchase program. Which was-

Dean Barber: Right. Which was part of Operation Twist.

Bud Kasper: Right.

Dean Barber: Okay. So you don’t remember all that stuff, people are going, “What Taper Tantrum, what are you talking about? You mean temper tantrum?” No Taper Tantrum because they tapered their quantitative easing.

Bud Kasper: Yeah. Meaning they bought fewer bonds. Right now, we’re buying, I believe correctly, $80 billion a month in treasuries is going out there. What’s the point of that? Is to get liquidity out into the system.

Dean Barber: They want interest rates super low.

Bud Kasper: Low, right.

Dean Barber: They want people to borrow money; they want people to spend more.

Bud Kasper: Well, which is economic fundamentals, and it’s good for the country.

Dean Barber: Right.

What About the National Debt?

Bud Kasper: At some point, you can’t keep adding to the indebtedness. I think our listeners and the vast majority of Americans are saying, “Can this continue? Can we keep putting this debt on the back of our grandchildren? It might not be impacting us now. People who are more socialistic in their viewpoints, I think, if they had their way, will end up causing a total dislocation in our economy, to the extent that it becomes detrimental to America.

Dean Barber: Yeah. I agree with you there, Bud. I mean, it’s crazy, but here’s the most important part about what we’re talking about, and that is that you are prepared when it comes to what inflation can do to you as you near retirement or are in retirement.

Bud Kasper: Yes.

Taking a Look at a Plan’s Inflation Rate

Dean Barber: On the break, I pulled up a plan, one of my clients, and I wanted to give an example. We always build a plan with a 4% or higher inflation rate because we want to be conservative. You use a higher inflation rate to be conservative because if your plan can survive with a higher inflation rate, if we don’t have that higher inflation rate, then that just means you’ve got more money to spend.

Bud Kasper: Right.

Dean Barber: So we built this plan with a 4% inflation rate, and the plan showed a 98% probability of success, which means that 98% of the time, using a 4% inflation from a historical perspective, then using Monte Carlo simulation, 98% of the time, this person would be able to do everything they wanted to do and would never have to adjust their spending.

Bud Kasper: As it was built into the plan.

Making Inflation Adjustment to the Plan

Dean Barber: Right. Right, 2% of the time, they may have to adjust their spending. Now I raised inflation to 5.5%. Why did I do that? I did that because most of the plans we see coming to us have an inflation rate of 2% to 2.5%. So if I raise the inflation rate to 5.5%, I wind up with a 90% probability of success, which means 10% of the time, I may have to change my standard of living. 

If I change it to 6%, not saying we have 6% inflation, but what if inflation is 4% and somebody who only has 2% built into their plan and 2% gives them that 98% probability of success. Then you come down here, and at 4%, it would give them an 84% probability of success. You start saying, “Okay, am I going to have to make adjustments to my lifestyle in the future if inflation is here?”

Bud Kasper: My reply would be, yes.

Dean Barber: Well, maybe.

Bud Kasper: Yeah.

Stress Testing Your Plan for Higher Inflation Rates

Dean Barber: Maybe, Bud, but that’s the beauty of our Guided Retirement System™ that we can go in and stress test plans for higher inflation. We can see scenarios where, okay, what do we say? We want you to be able to enjoy yourself and do the things you want to do. Still, we want you to avoid the risk of running out of money but also avoid the chance of being too frugal and saving and dying on a mattress stuffed full of money that you could have enjoyed.

Bud Kasper: I so agree with that statement, and I see it happen every year with clients that have passed away, and they didn’t do all that they could have done, had the means of doing it. The reason I said yes, is people are smart. They understand that they’ve got a finite amount of money and understand their spending patterns. They will make adjustments accordingly. Sometimes in the case of the COVID, it was forced on them.

Dean Barber: Right.

Adjustments are Normal

Bud Kasper: In normal circumstances, people will make adjustments. Maybe they postpone getting a new car for another year.

Dean Barber: Right, Bud, but here’s the point, is that if you knew, let’s say you’re working and you knew that three years from now, you were going to lose your job, and you’re going to have to be forced to change jobs, and you are going to be making less money. What would you do today? You’d start preparing.

Bud Kasper: Right. Right, right.

Dean Barber: So when we’re using the Guided Retirement System™, and we go in, and we stress test for these events, higher taxes, higher inflation, we put that in the plan, we go, “Okay, you know what? Here’s what this is going to do to you. This is how it will impact your ability to do exactly what you want to do.”

Either the answer will be, “You know what? You’re so well funded that it’s not going to have any impact at all. Maybe it’s going to reduce the legacy that you leave behind. Then you’re okay.” 

That’s not the case for the vast majority of people. So what we need to know is what is that higher inflation? What is the higher taxes? What does it mean to your ability to do the things that you want to do heading into retirement? That’s where the whole Guided Retirement System™ comes in.

Healthcare, Taxes, and Inflation

Bud Kasper: That’s why it works so beautifully. The other part of it is, let’s say that we inflated healthcare at the same pace that we were inflating the normal portfolio. What a mistake would that be?

Dean Barber: Oh, huge. Huge.

Bud Kasper: Yeah, because anytime we have people coming in, especially people who want to retire before they reach 65, the biggest obstacle we’re going to have is what?

Dean Barber: Healthcare.

Bud Kasper: The healthcare costs until they get there. So really, for people who thought, well, I’m 60, and I’m out. You might have to rethink that based upon the resources of money you have and where they’re located, are they taxable? Are they not taxable, et cetera, et cetera. That’s why the word comprehensive planning comes into play.

Dean Barber: Well, here’s what you do. You owe it to yourself to schedule a complimentary consultation with one of our CERTIFIED FINANCIAL PLANNER™ Professionals. We can do that complimentary consultation by phone, virtually, or we’re happy to meet with you in person. Just click here to schedule.

Keeping an Eye on Inflation

We’re going to keep a close eye on this whole inflation thing, Bud. If we get the feeling that it’s not going to be transitory, like what Jerome Powell was thinking, we’ll be shouting about it here. 

We’ll be writing about it. We’ll be doing some webinars and things on it because it’s real. I go back to the analogy that I made from Top Gun. We got Jerome Powell. He’s Maverick, man, going through the danger zone. There’s a lot of danger out there if we do have inflation, which comes in any significant number.

Bud Kasper: Yeah. Then I don’t think people ever realize, nor should they necessarily need to. Still, the amount of time that we spent trying to understand the situations that our clients may find themselves in, whether it’s good or bad, is our responsibility to share that with you on this program.

Dean Barber: That’s exactly what we will do. Well, we appreciate all of you spending some time with us here on America’s Wealth Management Show. I’m Dean Barber, along with Bud Kasper. Make sure that you get out to your favorite podcast app and subscribe to America’s Wealth Management Show. You can catch us anytime, anywhere. We’ll be back with you next week. Same time, same place.

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