Inflation. It’s been called the cruelest tax of retirement. But as an industry, we’ve failed to talk about income increases for the last 10 years. The inflation rate has been near zero for a long time due, in large part, to quantitative easing.
It’s easy to forget the devastating effects of inflation. However, over time, the same income will be able to purchase fewer things than it does today. Suddenly, your clients will wake up and feel their cash flow is constrained by more expensive items. That is especially true with items such as higher education, health care, and long-term care.
Most Americans will plan for their income needs through qualified account balances, nonqualified savings, a few pension plans that are still available, and Social Security. Of all of those, Social Security is the only source that potentially increases with inflation. For 2019, recipients will receive a 2.8 percent increase from last year. Other forms of income – guaranteed or not – don’t have a built-in feature for inflation protection.
How many retirees are happy with a raise in their income? I guess that no one will return the additional cash they receive in 2019. So, the conversation you need to have with your clients is: “If you like the raise you got from Social Security, let’s talk about doing the same with the rest of your retirement income.”
I bet if you talk with your clients about their recent raise from Social Security, they would likely come to your office to learn how to do it with the rest of their retirement income portfolio. That question alone might be the best lead generator you use at the beginning of 2019.
Think in terms of after-tax, after-inflation income. Help your clients understand how they can give themselves a raise by addressing inflation in their retirement plans.
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About the Author
Mike McGlothlin is a team leader, retirement industry activist and disciple of Indiana Hoosier basketball. In addition to being EVP of retirement at Ash Brokerage, he is a sought-after writer and speaker. His web series, “Winning Strategies,” provides insight and motivation for financial advisors in many forms – blogs, books, videos, podcasts and more. His latest book, “Free Throw for Financial Professionals,” is available now – learn more at www.freethrowsforpros.com.
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