JUST PLAIN TALK: A way to deal with inflation

Buz Livingston
Buz Livingston

A pundit recently wrote that advisors are now concerned about inflation. I beg to differ; most of the ones I know always have been. Even a modest 3% inflation means purchasing power is cut 50% in 24 years, a decent proxy for retirement. In addition, healthcare costs rise faster than the Consumer Price Index, so retirement planners always consider inflation.

You don't have to be a mathematics major to understand cash and bonds aren't keeping up with inflation. But importantly, consider your overall portfolio and how it performs. Does it keep up with inflation? For example, historically, stocks have been a way to hedge against inflation, but stocks are extraordinarily volatile. So, you have a double whammy if stocks are off 10% and a hurricane hits.

It's not only emergencies, either. Cash is king for short-term goals or living expenses. Mandatory distributions from IRAs and qualified plans kick in at age 72. Cash and bonds keep you from selling during a downturn when withdrawals are required. While Congress waived compulsory distributions in 2020 and 2008, there's no guarantee they will do it again. Remember, Congress didn't act in 2001. Besides, most Americans don't have a choice; they need retirement savings to live.

Fear not, US Treasury-issued I-bonds provide a way to blunt inflation. Currently, I-bonds yield 7.12% guaranteed thru April 30. If they don't tarry, a married couple can put up to $40,000 in them. Since purchases are limited to $10,000 per SS number, a couple can buy up to $20,000 before Dec. 31 and repeat next year.

Say you don't have $10,000 laying around; I get it. Buy them incrementally. Outside a government default, your principal is secure, and they will grow with the CPI, but make sure you understand the limitations. No redemptions are allowed in the first 12 months, and there is a three-month interest penalty for any sale in the first five years. Unfortunately, you can't buy an I-bond inside an IRA.

Some, particularly older boomers, may find the website www.TreasuryDirect.gov challenging to navigate. It's really simple. Don't hit the "back" button, or it kicks you off the site. Two-factor authentication is standard. Instead of looking at these as hindrances, they protect you.

Paper bonds can be difficult to redeem, but electronic bonds are a breeze to sell. Place the sale, and the money is in your bank account the next day. Paper bonds are still available if you use your tax refund up to $5,000. So, you could buy $15,000 per year, but I don't recommend it. If you go this route, convert them to the electronic version to simplify your finances.

As corrosive as inflation is, the other "I" word, insurrection, is far worse. Long-term growth depends on democracy and the rule of law. In response, prosperity blossomed in eastern Europe and spread across the Atlantic to North America. An authoritarian America won't be a prosperous one. But, if democracy dies in the dark, prosperity will follow. Happy holidays!

You can't always get what you want, but Buz Livingston, CFP, can help you figure out what you need. For specific advice, visit livingstonfinancial.net or drop by 2050 West County Highway 30A, M1 Suite 230.