Investing in Retirement: Part Two

Time Can Mess Up your Retirement

By Gary Silverman, CFP®

Today we'll finish up my little series about problems people run into when shifting from investing for retirement to investing while in retirement. Our focus will be two stealthy retirement problems: Inflation and your brain.

Inflation is simply the effect of something costing more in the future than it does now. Recently inflation has been very low. Some experts expect that to continue for a long time. Others expect it to skyrocket. Reality says we don’t know.

The key for your retirement investing (current or planned), is to know that inflation exists. That way you also know that if things look great now with your portfolio, your pension and Social Security income, and your expenses, it might not be so in the future.

If you value only safe investments such as bonds, CDs, and the like, it is very possible that your return will at best equal and could very well not keep up with taxes and inflation. Other than those from the federal government, most pensions do not inflate; so, you know at the outset that the purchasing power of that income stream will be lower every year. Also, if your forecasted spending is the same every year, you might find out that your forecast is wrong. Let’s face it, it costs more to live now than it did 20 years ago. That trend is very solid.

Now, about your brain. It changes. Some things that come easier to us when we are young are harder when we are old. When it comes to our mental abilities around finances, research seems to indicate it peaks in our 50s and then starts to go down. Of course, as we get older, we also get more experience, so that helps; but at some point, you just won’t be as capable as you are now. And then there’s the possibility of dementia.

So, what are you going to do about it?

Yes, you might be fully capable of managing all of your finances until the day you die. Notice the word “might.” It implies you might not. What then? Can your kids help you with your investing, paying the bills, making decisions on large purchases? Do they want to? Do you want them to? Do you even have kids?

Hey, I’m in the same boat. While I’m functioning just fine now (in many areas, better than I ever have), I do see the effects of aging and it’s not just in the mirror. I’ve surrounded myself with younger folks, made sure they know what they are doing (in most cases better than I do), and have them help me. They are blessed with the young minds and I am blessed with experience. This way, they're ready to soak in the knowledge while they gain more experience. Since I run a business, this is kind of critical if the business is to outlive me.

This arrangement also gives me a resource to call upon to run my personal financial affairs should the time come that I’m no longer capable. You need the same thing for yourself. That’s not to say you will need the help, but to know where you’d go for it before you need it is a critical part of planning.

Gary Silverman, CFP® is the founder of Personal Money Planning, LLC, a Wichita Falls retirement planning and investment management firm and author of Real World Investing.