What You Need to Know About…
Inflation

It’s Still a Danger for Retirement Investors

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:

• Growth of capital
  
  
• Income
  
  
• Tax savings
  
  
• Safety

Inflation: still a danger
Many people say, "My goal is not to lose my money." But even this goal can be misleading. If your assets are earning two percent in a very "safe" place while the inflation rate is three percent, your purchasing power is being eroded at about one percent per year. To add insult to injury, you have to pay tax on the earnings -- so your purchasing power is actually being eroded faster. Over the years, an expenditure like replacing a roof or going on a trip becomes a major financial undertaking.

In recent years, inflation has not been the obvious menace that it was in the late 1970s and early 1980s. According to the Bureau of Labor Statistics, the average rate of inflation from 1985 to 2005 was 3.0%. This “low-grade” inflation can lull investors into dismissing inflation as unimportant.

But at that rate, for every $10,000 of income you need today, you'd need $13,400 ten years from now and $18,000 twenty years from now. 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.

To offset the effects of inflation on your portfolio, you must 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.

Our firm does not render legal, accounting or tax advice. Please consult your CPA or attorney on such matters.

The opinions expressed in this report are those of the author(s) and are not necessarily those of David A. Noyes & Company or its affiliates. The material is distributed solely for information purposes and is not a solicitation of an offer to buy any security or instrument or to participate in any trading strategy. Provided by courtesy of [name], a [title] with David A. Noyes & Company in Chicago, IL.

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