A Wiser Retirement®
Ready to take control of your financial future? A Wiser Retirement® Podcast breaks down the strategies, insights, and real-world lessons you need to build lasting wealth and retire with confidence.
Each week, we cut through the noise to simplify complex financial topics, covering everything from smart investing and retirement strategies to practical financial planning you can actually use. You’ll hear real success stories and actionable tips designed to help you make informed decisions at every stage of life.
Whether you’re just getting started or fine-tuning your retirement plan, this podcast is your roadmap to financial freedom.
A Wiser Retirement® Podcast is produced by Wiser Wealth Management in Marietta, Georgia, where we specialize in comprehensive wealth management and financial planning services.
Take the next step toward a smarter financial future, schedule your complimentary consultation with one of our fiduciary advisors: https://wiserinvestor.com/schedule/
A Wiser Retirement®
308. The Silent Tax: How Inflation Erodes Your Retirement
Use Left/Right to seek, Home/End to jump to start or end. Hold shift to jump forward or backward.
In this episode of A Wiser Retirement® Podcast, Casey Smith, and Financial Advisor Michaela Dowdy dive into how retirement planning isn’t just about matching today’s income with today’s expenses. It’s about preparing for the future value of money.
Related Podcast Episodes:
Ep 245. Strategies for Early Retirement and Long-Term Security
Ep 212. Medical Costs During Retirement and Preparing for the Unexpected
Related Financial Education Videos:
How Often Should You Review Your Retirement Income Plan?
What to Do When a Loved One Isn’t Financially Prepared for Retirement
Learn More:
Founded in 2001, Wiser Wealth Management is a fee-only fiduciary financial planning and wealth management firm helping individuals, families, and business owners make informed financial decisions.
Have questions about your financial plan? Schedule a Complimentary Consultation to discover how we can help you achieve financial freedom. We are local to Atlanta, but can meet with you virtually from wherever you are.
Access Our Free Guides: Gain valuable insights on building a financial legacy, the importance of a financial advisor for business owners, and the tax impact on inheritance, and more!
Stay Connected:
Follow Wiser Wealth Management on Social Media: Facebook | Instagram | LinkedIn | Twitter
Subscribe to A Wiser Retirement® YouTube Channel for more financial education videos and podcast episodes.
This podcast was produced by ...
The Silent Retirement Killer
Speaker 1A long time ago , there was a family that was going to retire and they said hey , I got it all figured out . This is my income and this is my expenses . It looks great , but they forgot something .
Speaker 2Yes , that big , inevitable something that no one plans for .
Speaker 1Welcome to a Wiser Retirement Podcast . Are you curious about why your $100,000 salary won't buy $100,000 of stuff in retirement ? I'm Casey Smith and today I'm joined by financial advisor Michaela Dowdy . Each week , we bring you practical advice on retirement , investing and planning for your financial future . Don't forget to subscribe to the podcast wherever you're listening . Let's get started , hey , michaela .
Speaker 2Hey Casey .
Speaker 1How's it going ?
Speaker 2It's been good yeah .
Speaker 1It's a lot of people passing through your conference room .
Speaker 2You're like busy , you're not no longer a rising star .
Speaker 1You're just a star .
Speaker 2I know , I know Caroline , when she first started I feel like we were , you know , in the summer , right back to school , like right there with that little bit of a lull Caroline's my planning associate and so I think she was like oh great , we're like this is easy .
Speaker 1This is easy .
Speaker 2It's a great job Like and now she's like I'm drowning Not really , but we are definitely more busy than we have been , and so it's been . It's been great , though , overall in our calendars looking good and busy , Um , but yeah .
Speaker 1Plus you've been doing uh you've been doing some of my planning to working with people that have been with me for 20 plus years , and for me that's always hard . I'm like , wait a minute , what do you mean ? You'll just go meet with Michaela ? What about me ? What about me , what about us ? Uh , but as but , as good it's , but it's good , it's uh we have 15 employees now 15 team members . Uh , so for me that's a , that's a lot , a lot to manage .
Speaker 3We even have like an HR person now , which is crazy .
Speaker 2You have to have like a whole much larger operations team than we've ever had , and larger . I mean we have a larger team altogether now , which is a larger team altogether now , which is , yeah , everybody .
Speaker 1Everybody has someone who does what they do , except for maybe , just a couple of us , but , yeah , there's more , more people doing the same thing . So it's been a , it's been a fun . It's been a fun ride . I'll continue to be a full , a good ride . I believe we're not going anywhere , but but the the demand for our services has been amazing . So let's talk a little bit about planning . You're obviously a planner here . I remember a long time ago there was a family that was going to retire and they said hey , I got it all figured out . This is my income and this is my uh , this is my expenses . It looks great , uh . But they forgot something .
Speaker 2Yes , big , inevitable , something that no one plans for .
Speaker 1So so what have I told you ? That a hundred thousand dollar salary today in retirement um won't buy you nearly the same amount when when you're later in retirement . Or a hundred thousand dollars that you're making today as a young person will not nearly buy you what you think it will at retirement . Definitely Right . No , it won't .
Speaker 1So we plan for this , but a lot of people don't think about this . They kind of just plan right there in the , in the now , assuming that things aren't going to uh , uh , inflate , prices aren't going to inflate , right exactly . So 2022 is kind of a wake-up call , uh , because then things inflated so fast that people oh my gosh , you know eggs are costing so much more , most costing so much more , but really it's kind of a silent killer . It happens very , very slowly . So I pulled some numbers down over the last 20 years
Inflation's Impact Across Different Sectors
Speaker 1. You know inflation has been mostly around the 2% mark , but there are things that are well above the consumer price index average . So if you look at college tuition , for example now not everybody's going to have that in retirement , obviously , but it increases at four and a half percent annually . That's 141% increase over the last 20 years . Just huge , it was just huge childcare .
Speaker 1That really affects young people . It increases by about 4.2% annually 128% increase over the last 20 , 20 , uh 20 years . Gasoline uh increases at 4.2% annually . That's 128% increase . Also , uh , everyone knows this one cable satellite TV , that's a 4% increase again , well above the average right . Uh , medical care , as , as we would expect , 3.8% annually . Uh8% annually over the last 20 years .
Speaker 2So then , if you break it out to like essential living costs , shelter and housing , going up 3% annually , that one seems so low over the last few years I think a lot of people would argue that one almost you know . Yeah .
Speaker 1But I know this is looking at the last 20 years , 20 years , when I think it was flat for such a long time .
Speaker 2But it is so fascinating to kind of see that fully broken out as well .
Speaker 1Restaurants go up 3% per year . Groceries 2.8 . Electricity 2.9 . Now , on the other side of this , what are things that have not ? Because if you have an average of two , then that means there's a bunch of things that are flat to maybe negative deflation . Uh , believe it or not , apparel only 0.2 percent annual increase over the last 20 years . And what you pay to wear .
Speaker 1That's shocking I , you know , part of me thinks well , 20 years , what stores have evolved that that would drive down the price of clothing ? I think TJ Maxx and Marshalls you have a lot of fast fashion now .
Speaker 2Yeah , that I think takes up a lot of the marketplace . That didn't before . So I think , your department stores are much more than they used to be , I would say , 20 years ago .
Speaker 1Green , even Marcus yeah .
Speaker 2Versus , I would say your online shopping is what's kept the you know driving the price down .
Speaker 1driving the price down , I would say Alibaba , and in Amazon , china and Amazon .
Speaker 2Yes , exactly , you have your she in and all of that . That has really driven that down .
Speaker 1I would say I have a hard time with this one . But new vehicles one point eight percent annually . Maybe it's the type of vehicle you're buying , possibly . Maybe I feel like those are way more than they used to be A Suburban in 2016 was 66,000 . Now it's like 110 .
Speaker 2So Well , and especially here recently with all of the like microchip drama . We had in 2022 and all of that . That made a lot of differences in the fact that you saw a lot higher of a price spike , because they weren't able to get recent years that supply out . So I don't know if maybe that's also been that more recency .
Speaker 1Yeah .
Speaker 2It has gone up versus , you know , for 10 , 15 years . Maybe it was more stable .
Speaker 1Airfare 1.5% annually . That doesn't feel like that , just because it was kind of flat . And then we had this big spike . You know , post post COVID and it's kind of . It's kind of stayed there especially if you depends on where you live , but especially in Atlanta market , because Delta has now decided it's a premium airline , so it's harder to find the deals as opposed to other markets .
Speaker 2The Atlanta airport is . That is one place . It is so fascinating to me being here . I was like , oh , it's going to be so cheap to fly in and out you know and uh , ended up it is really actually more expensive . It's almost like a premium airport because it's so busy .
Speaker 2I'm assuming likely those legs that you know that you know airlines are having to fight for that . Essentially , they're having to pay a higher dollar to get those legs . Maybe I'm totally wrong , but that would be my assumption . And so it makes the prices so much more expensive .
Speaker 1Delta just has so much real estate that anybody comes in . They just , they can squash them . So if you get lucky and you're going somewhere , that there's a price war , then maybe maybe that maybe that benefits you .
Speaker 4But , but yeah , no , the other markets are much cheaper .
Speaker 1I've noticed , even like New York , there's so many selections , so much to select from . In New York I feel like the airfare is cheaper there than it is in Atlanta if you're originating there .
Speaker 2No , I would agree . I mean , I know here lately just since my family lives closer to Nashville and I have a dog I have to drop off . That's kind of where I end up just flying out of . Out of Nashville a dog I have to drop off . That's kind of where I end up just flying out of and it ends up being hundreds of dollars cheaper than a direct flight from Atlanta . It is the most bizarre thing to me but it's , what it is All right , so let's .
Speaker 1We've talked about inflation and what it's causing , but let's define that . Can you ? Can you define just a simple definition of inflation ?
Speaker 2Definitely so . Inflation is really just your money losing purchasing power over time . So essentially it's saying that you know over time , as we've all seen . You know even in the marketplace , I'm sure , if you even just think back like , oh , you know , gas used to be a dollar or even , you know , cheaper than that .
Speaker 1I used to buy a hot dog at the ball game for a nickel , yes exactly , Exactly .
Speaker 2And so it's just showing that your grandfather says I used to buy a hot dog at the ballgame for a nickel . Yes , exactly . And so it's just showing that overall , those , those expenses didn't necessarily or those items didn't change in their value . It's really they just got more expensive because or expensive in the sense of how many dollars it takes because the dollar overall just got weaker over time . And so that's where it's really taking into effect that your money is , essentially due to inflation , is losing that purchasing power year over year .
Speaker 1Yeah . So the reality is you have to think of inflation as like a silent tax on your savings . So if you have a family member or maybe yourself are super conservative and you're putting money in a savings account , that savings account is paying you 2% , but inflation's at 2% . You're breaking even .
Speaker 2Yes , exactly Right , if inflation .
Speaker 1Reality is most people are leaving . If you're not using high yield savings , you're still under 1% . So if , if the price of uh we just set we just read over 20 years the price of groceries are going at three , 3.1% per year , Then you're losing . If you're getting 1%
Understanding Inflation as Purchasing Power Loss
Speaker 1, you're you're losing uh 2.1% in purchasing power . So , year , the first year you don't feel it . Five years you don't feel it , but you down . 20 years you definitely feel the purchasing power .
Speaker 1And then all of a sudden , you feel stuck because you , you can't , you can't support yourself based off the income stream .
Speaker 2No , exactly so yeah , I think .
Speaker 1another example is it's like compounding interest working against you . So you think about how compounding works , where you you know you put in a dollar and the dollar has interest and it grows and that dollar makes interest and keeps building . It's the same way with inflation . So in compounding for your savings it doesn't feel like you're saving much or you're getting at getting anywhere the first 10 years , but then those last few years of savings it's a tremendous amount of money hundreds of thousands of dollars that are compounding right it is , but then it's almost having like that , inflation is the opposite of that as well .
Speaker 2where it's , you know you're really like losing , you're going the opposite direction If you're not , you know , investing it in something that is growing , then you're really losing those percentages each year .
Speaker 1And I think we talk about this with clients in our planning sessions , but I know it's on the chart . It has the portfolio design , portfolio rate of return , and then it has the inflation and then you get your real return . Yes , but that's kind of the litmus test of different portfolios is what's my real return after losing purchasing power ?
Speaker 4And you have to build that into your plan .
Speaker 1I don't have one right in front of me , but if someone needed $100,000 today and then they were retiring in 20 years , or they need $100,000 today and they're going to be retired for the next 20 years , it doesn't really matter how you look at it . I think the plan's probably going to say they need about $180,000 , something along those lines per year in future dollars , yes , in future dollars .
Speaker 2So when you ?
Speaker 1do the financial planning you're applying ? We use a 2.5% inflation rate , but you're applying that 2.5% inflation , so every single year they should be getting a pay bump . Yes , exactly by two and a half percent , right ?
Speaker 2Well , yes , and then what we're also doing , you know , is for healthcare . If they have a healthcare , well , we always break out the healthcare budget . But because we just talked about how that's growing so much more tremendously at 3.8% annually you know , we're taking that into account separately from even the traditional inflation at that two and a half percent . We want to make sure that you know , as we get older , traditionally you know your medical expenses are going to increase .
Speaker 1We use 5.3 , right .
Speaker 2Yes , exactly , we use a much higher amount , and so you just want to make sure that's being accounted for as well . And you know it's not something you're necessarily going to find in a very simple calculator online . Or you know it's not something you're necessarily going to find in a very simple calculator online . Or you know , maybe you could do it in your Excel spreadsheet if you had the right numbers . But it is
Fixed Pensions vs Rising Costs
Speaker 2, you know , making sure you're taking into account those different sectors where you're going to be spending additionally as well , and that will be a larger cash flow in the future , especially in retirement , and that really does skyrocket that amount of you know what you need in retirement overall . Before we jump back into the episode , do you know if you are ready to take off and launch into retirement ? Get your pre-retirement checklist , a free guide from Wiser Wealth Management . From cashflow to social security , we've got your countdown covered . Go to wiserinvestorcom slash guides to download your free guide today . Now let's get back to the episode .
Speaker 1So we actually have a note here and I missed it . If inflation averaged 3% per year , $100,000 a day is only worth $55,000 in 20 years .
Speaker 2Which is an insane statistic to think of , you know . But that really does put it in perspective . And I think it's something too where a lot of our planning software you know we're talking a lot about future dollars here and you want to be thinking in future dollars , but at the same time our brains don't fully grasp what a future dollar is . You know , we can say a thousand times until we're blue in the face , that your hundred thousand dollars today is only is actually going to need . You know you're going to need . You know 200 , some odd thousand I mean , that's a random number , but you know , in the future , but we're not fully understanding the grasp and the grip of what that 200,000 looks like , and so it's understanding that you know , in that present value of like , okay , well , we need a hundred thousand dollars today . I know that for a fact . Well then , let's apply inflation to everything else and then that'll actually give us the number you're actually going to need in retirement and future dollars .
Speaker 1Yeah , so when you look at it on a computer and our , it all makes sense . But yeah , it doesn't make sense if you just sit here and tell somebody no , you can't retire pensions . So a lot of a lot of pensions don't have the cost of living in Greece built into it , so that so a pension is going to be . Let's say you got $50,000 a year for your pension but it stays . Especially corporate pensions , they stay at $50,000 . So that $50,000 in 20 years could be $25,000 worth really Exactly .
Speaker 4And it's purchasing power .
Speaker 1So you have to make sure that you're , you're , you're investing your money in a certain way that you can keep up with inflation plus a little bit more .
Speaker 2Definitely . Well , and that's the thing too is it's like even if you were to look at your first probably , like you were saying five years of retirement with that $50,000 pension , you might be like , oh yes , this is great , it's going to provide easily for all of my expenses , but it's really looking at 25 years down the road , oh , that 50,000 really doesn't make a huge dent in now what you need for retirement . And so it is taking into effect . You know , eventually you will need to be pulling you know more so out of a portfolio of some kind or some other sort of income source at some point in order to make those cash flows still happen , especially if that pension does not have that cost of living adjustment .
Speaker 1I think a real world example is like you have pension and social security which does increase with a consumer price index , but you have a pension , social security for a husband and wife and they need $80,000 to live on . But all the pensions , those security , let's say , total up to a hundred thousand . Uh , but the software doesn't give them a hundred thousand . The software gives them a lower number yes , Might give them 75,000 . And then over time it increases what they need out of that excess .
Speaker 1And then at some point , the pensions , for the most part , are going to be fixed , the social security is going to move up a little bit , which is helpful , but then you don't touch the portfolio at all for maybe the first 10 , 15 years of retirement , but then near the end , you , you , you need a lot of the portfolio because of inflationary pressures . So I think we've done a good job of painting the problem , painting the picture . Now let's talk about how do we , how do we solve for that ? What do you , what do we do to beat inflation ? When it comes to retirement and savings , I think most people would say you invest smartly . But what does that mean exactly ?
Speaker 2No , definitely , and it's really figuring out what
Smart Investing to Beat Inflation
Speaker 2is that risk that you need to be taking on in order to have the growth that you need for retirement . So it's finding that perfect balance . Some people , that is going to be that traditional 60 , 40 that we hear talked about . So 60% stock , 40% equities , not equities 40% fixed income .
Speaker 2Apologies . So you know some people , that is going to be that traditional model . Others , depending on when you retire , it could be , you know , even 70 , 30 , if you're a really early retiree . Or it could be , you know , 55 , 45 , if you're just a little bit more . You know , hesitant in the market play or in the investing . You know market , but overall you know it really is making sure that you're investing smartly to get the returns that you would need , while also making sure that you're balancing , you know having that , you know hedge as well a little bit there too , so that you can perform well across all markets regardless of the performance overall . So just making sure that you have that inflation protection in that way of just participating in the growth of the stock market overall .
Speaker 1So stocks are good . Real estate is a good inflation protector . You're literally owning the asset that is probably increasing the most . And then inflation protected security , so you can do a treasured inflation protected bonds that is what that's referring to as part of your portfolio to help keep up with inflation . The bond market in general is not going to be your friend if there's a high inflation period .
Speaker 1It'll hold its own as far as returns and being stable . But you , what is the price of volatility ? The rate of return to your portfolio from stocks is the price of the volatility , or you pay for it through volatility . Did I spit that out right ? Yes , yes . So yes , you may have to go on a little more volatility and stick more to the stock side of your portfolio , but that historically , has always kept up , and plus way more with inflation pressures . So that kind of goes back to our second point of diversification balancing the risk with inflation with inflation hedges , because you can be 100% stock and not be worried about inflation at all . But can you sleep at night because the market's down 60% over two and a half year , like it was in the financial crisis , exactly ?
Speaker 1So you have to , you have to find , you have to find that happy place Also , I would . I would go back to budgeting . We don't talk about that budgeting a whole lot here just because we're a wealth management firm and most people are pretty good at budgeting if they've hired a wealth manager , Right . But but understanding what is it you're buying that's subject to inflation . So if you're , if you're buying that car well , you're only buying a car every so often and you can choose not to buy that car .
Speaker 1You can buy a used car . There's other alternatives .
Speaker 2You can choose not to have every cable channel that keeps inflating every month and you have to have the NFL Sunday ticket Of course you do and the NBA one and the NHL one .
Speaker 1So you have . You have to just pick and choose . You may decide that you're not going to participate in the travel inflation because you're going to travel differently or you don't want to travel at all . Every family is different , so just understanding what's inflating and I feel like for prior to 2022 , I don't feel like our clients really experienced inflation that much . There was less inflation . If you're an older person no longer working than if you're a working person , you're not subject to the gas every day , right ? You don't have kids in childcare , yeah .
Speaker 2College education is probably taken care of .
Speaker 1Most likely so all the thing , all the big inflated inflation . Things didn't really hit until 22 or late 21 into 22 . And that's created . That created the pressures that people are seeing now almost overnight .
Speaker 2Yes , and one thing that I do kind of want to note on , because I feel like we hear it a lot of times with our older clients or people that are about to retire as well , of thinking well , I'm going to keep it in my and you've already kind of touched on this your savings account at the bank , and because then it's protected from market volatility , and the only big risk , like the risk we're talking about with this , is that if it's not a high yield savings account , you're pretty much locking in losses year over year Versus . If you are invested in a diversified portfolio in the market , then you're at least participating in growth .
Speaker 1Yeah .
Speaker 2And there is an opportunity for growth . You know , compared to at a bank , you don't really have opportunity for growth and there is an opportunity for growth . Compared to at a bank , you don't really have opportunity for growth . Now , if you're a high yield savings account , there is growth there to a degree . But if it's just in your traditional checking savings , getting 0.01% or whatever it may be , then you're just locking in losses year over year and even though it might seem like it's a safer investment , in reality you know you're going to get down the line and you're not going to have that protection , that cost protection that you needed , and you've lost , you know , potential purchasing power year over year . And so , just to you know , check there with yourself . As far as you know , looking into , you know , yes , it may seem like the best choice , but there is a point you know where , yes , of course , you do have to take risks to get a return and at a certain point you do need that , even to just protect against inflation .
Speaker 1Yeah , you solve this by going through our planning process and , for those who are retired and we're managing your assets , you're if you were drawing money , you're already in a cash bucket system . So you already have
Cash Bucket System and Retirement Planning
Speaker 1cash on your side , typically 50 to a hundred thousand dollars . At minimum . You have two years worth of withdrawals inside the portfolio that we're managing , and then you have bonds and then you have the equities , the stock . So in the end you could probably go 10 years in a terrible stock environment . You'd never have to touch the stock . So that's where you want to understand that system . Then you're less likely to be hoarding cash away in a low yield account with higher inflation happening outside that , which is bad . So that that's a very good point . Uh , I think the last thing I'll add is just , you got to make sure that you're updating your overall retirement plan , retirement planning is never done one time .
Speaker 1Retirement planning is done continuously .
Speaker 1Yes and the clients who've been here a long time know um , we , we , when we do our review meetings , we're really focused on that plan . Uh , the portfolios will take care of themselves . Low cost , low cost , uh . Index focused portfolios do really well over the longterm . Uh , so it's really those those regular planning means are so important to make sure that we're doing our job as fiduciaries that we have , um , we , we have set up the best portfolio for you only if we know what's happening in your life and do we ? Need to make adjustments right ?
Speaker 1Yes , exactly . Unfortunately we have sad adjustments occasionally . We have nursing home expenses , we have big ticket items that pop up . We have to kind of pivot things a little bit . But for the most part check-ins are easy . We're not telling people you can't spend money , it's just making sure that everything the machine is running well and there's nothing that we need to get ahead of .
Speaker 4Right , that's what those meetings are for .
Speaker 1So really , you know , I think our takeaways are you have to think about future dollars , not today . We do that well in our planning process . You can't do retirement planning simply by calculating this is how much I have , and , and you know some people will do that .
Speaker 1But what the ? I think what's happening is they're not able to live their best lives . They're not doing the right math formula to say , hey , I could actually spend more money , right , or I can invest a little bit differently and be able to spend more money . Run projections . Obviously that would include realistic inflation assumptions . Don't don't be assuming 1% inflation , not even 2% inflation currently . Um , don't , don't rely solely on static uh salary or a savings target . Is planning is very dynamic ? Um , and then I would encourage you to work with a fiduciary fee only planner fee only being a keyword .
Speaker 1You don't want to get sold products .
Speaker 2Yes , no , fee based , fee only .
Speaker 1Yes , people will try to sell you products to solve this problem , and it's not a product problem . No it is not , so that's very good . Thank you , michaela Of course , thanks for having me . And if you guys would like to meet with Michaela , talk about your inflation planning .
Speaker 4She's able to do it , although there's a long line .
Speaker 1You might have to wait a few weeks to get on Kayla's calendar . Thanks for listening to today's episode . If you're interested in learning more about Wiser Wealth Management , I want to schedule a consultation with one of our fiduciary financial advisors . You can do so by going to wiserinvestorcom or by clicking the link in the episode notes . We'll see you guys again next week .
Speaker 4Thanks for listening to a wiser retirement podcast . We hope you enjoyed today's episode . Make sure to subscribe wherever you're listening . That way you don't miss any new episodes . We'd also appreciate if you could leave a rating and review .
Speaker 4If you have any questions about anything that was discussed today , head to wiser investorcom and reach out . This podcast is strictly for informational purposes only and is not to be considered as investment advice or solicitation to buy or sell any financial products , securities , digital assets or any other investment vehicles or a basis to make any financial decisions . Wiser Wealth Management Incorporated is a registered investor advisor with the SEC . The host and or guests may personally own securities , digital assets or other investment vehicles mentioned on this podcast . Neither the host nor guests of the show are compensated for their participation and no referral fees are paid to or received by any host or guest for clients , listeners or similar interests . Investments involve risk and , unless otherwise stated or not guaranteed , be sure to first consult with a qualified financial advisor , tax professional , insurance professional and or legal professional before implementing any strategy discussed herein . Past performance is not indicative of future performance .
.jpg)
.png)