BRIAN JOHNSON
07/18/2008
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On Wednesday of this week the Labor Department announced that average U.S. consumer prices increased 1.1% in the month of June.
That was the second largest single monthly increase in 26 years; the largest being a 1.3% gain in September 2005 as a result of Hurricane Katrina driving up energy prices considerably.
Energy prices jumped 6.6% last month, according to Wednesday's report.
Gasoline prices spiked 10.1% for the one month period and 32.8% since June 2007.
Natural gas prices rose 4.9% for the one month period, having risen sharply for the 5 consecutive months and are now up 21.5% for the year.
Average U.S. consumer prices overall have risen 5.6% since last year.
Here in the Midwest Region, we faired slightly better than the U.S. averages, however energy costs are rising.
The cost of gasoline is one thing, but I'm really not looking forward to opening those bills for heating our home this winter.
And that leads me to wonder, how in the world are current retirees on a limited income going to cope?
Anyone currently retired or considering retirement in the next few years should really take steps to plan ahead.
The first steps in planning for the retirement years are to survey your current financial situation and define your goals.
Be sure to consider your wishes for:
n Growth of capital
n Income
n Tax savings
n Safety
Inflation is more of a danger in retirement years than ever.
Many people say, "My goal is not to lose my money." But even this goal can be misleading.
If your assets are earning 2% in a very "safe" place while the inflation rate is 4%, your purchasing power is being eroded at about 2% per year.
To add insult to injury, you often have to pay tax on the earnings, so your real purchasing power is actually being eroded even faster.
Over the years, expenditures such as the cost of replacing a roof or going on a trip become a major financial undertaking.
For every $10,000 of income you need today, you'd need $13,424.23 ten years from now and $18,496.62 twenty years from now, based on actual historical inflation data provided by the Bureau of Labor Statistics (to try these calculations yourself, visit the "Inflation Calculator" found on their website at http://www.bls.gov).
As prices continue to rise each year, your purchasing power is being eroded.
And this doesn't take into account the damage that can be done by "bracket creep", finding yourself in a higher tax bracket because of the rising number of dollars you take in, despite their lower value.
Inflation is a very real danger for retirement income.
To offset the effects of inflation on your portfolio, you should ensure that the total return (growth plus income) of your investments meets or beats the rate of inflation, adjusted for any movement to a higher tax bracket.
Your financial advisor can help you establish your investment goals and design a portfolio to balance all your investment needs.
On this note, I'd like to take the opportunity to inform you of my upcoming seminar, Beyond Retirement Illusions on Thursday, August 7 in the Bricker Room of the Shenandoah Safety Center at 4:30pm.
A light dinner will be served. This seminar is open to the public.
Along with representatives from The Hartford and Franklin Templeton Investments, I will be addressing the concepts and strategies to employ for preserving the buying power of your dollars in your retirement years.
Anyone currently in retirement or considering retirement in the next few years is invited to attend.
Please give me a call if you would like to join us for the seminar.
Brian can be reached at Bank Iowa Investment Center, 712-246-1311. Our firm does not render legal, accounting or tax advice.
Please consult your CPA or attorney on such matters.
