How Do I Manage Inflation Risk?

Inflation will affect your retirement one way or another. It’s up to you to create a strategy to manage that risk. On this episode of Retirement Answer Man, you’ll learn how you can build your own strategy to deal with the creeping risk of inflation.In the past two episodes, you learned what inflation is and how it can affect your retirement. Next week you’ll learn how to use tactics to tweak your strategy to optimize it for specific situations, but first, let’s go learn how to come up with your own plan to combat inflation. Data vs noise It is important to understand the difference between noise and signals when coming up with a strategy. It’s easy to be distracted by the everyday noise that surrounds us and fail to heed the signals that we should actually be watching for. In today’s overly connected world, we have access to information that is being transmitted instantly. Rather than learning from the signals that can help us create a course of action, we get distracted by the constant noise. As data flow increases, we tend to get overloaded with information. According to Nassim Taleb in his book, Antifragile, data is toxic in large and even moderate quantities because it increases our tendency to overreact to the noise. This is an important factor to recognize when coming up with a risk management strategy which is what a retirement plan really is. Strategies start with vision Coming up with a strategy for retirement planning is like checking a recipe before you go to the grocery store. You want to make sure that you have all the ingredients so that you can put them together in the correct portions to create a meal. If you don’t plan before your trip to the supermarket you could come home with plenty of food but nothing that will help you prepare a healthy meal. To ensure a healthy retirement, make sure that your retirement starts with your vision for life. How to create a strategy to manage inflation Now you understand that you need to have a goal in mind before you create a retirement strategy. The two risks that you must balance in retirement are sequence of return risk and inflation risk. Sequence of return risk is a near-term risk that occurs when your stocks go down in value shortly after you begin withdrawing from your accounts. The risk of inflation means that the value of your dollar decreases over a longer period of time. Your retirement strategy needs to balance these near-term and long-term risks. Listen in to hear how you can manage inflation risk while at the same time considering sequence of return risk.If some of the terminology I use confuses you, make sure to listen in the month of March. I plan to explain the fundamentals of retirement planning in greater detail. You’ll learn about the pie cake, agile retirement planning, and the retirement plan of record. OUTLINE OF THIS EPISODE OF THE RETIREMENT ANSWER MAN PRACTICAL PLANNING SEGMENT [3:29] Noise vs. signals[5:35] What is a strategy?[12:57] How to create a strategy to manage inflationLEARNING FROM DONALD’S SITUATION [20:40] Learning from Donald’s retirement plans[25:46] What happened to Donald’s wife[29:15] How Donald’s perspective has changed[33:08] How Donald’s financial plans have changed[35:20] Use the technology you have to record your loved onesTODAY’S SMART SPRINT SEGMENT [36:47] Evaluate your reaction to inflationResources Mentioned In This Episode LTCI PartnersWSJ article - The Trouble with a Stock Market Bubble by Jason ZweigFILM - The Social DilemmaBOOK - Antifragile by Nassim TalebRock Retirement ClubRoger’s YouTube Channel - Roger ThatBOOK - Rock Retirement by Roger WhitneyWork with RogerRoger’s Retirement Learning Center