Inflation does not have to feel like a bad omen. It’s actually a natural occurrence that happens when the prices of goods and services increase over time. And even though it poses threats to retirees on a fixed income, you can view it from an alternative perspective.
The rate of inflation can vary depending on some factors, including:
- The demand for goods and services
- The availability of resources
- Government policies
So what are the risks of inflation, and how can you protect your estate plans from inflation?
Is inflation necessarily a bad thing? No!
Inflation is a natural economic occurrence Whilehigh inflation is considered harmful, some economists agree that a small amount of inflation is healthy in that it can help push economic growth. Defined as the rate of increase in prices over a certain period, it’s generally a broad measurement. For example, look at how much the median home value in the U.S. increased between 1940 – 2000.
As you live through the increase in prices and endure the fall in purchasing power of the dollar, it’s essential to get investment advice from retirement financial planners who have provided risk and wealth management in Greenville, South Carolina.
What are the risks of inflation?
Inflation has the potential to seriously damage your long-term goals and, essentially, your well-crafted estate plan.
First, inflation can increase the cost of living and make it more expensive to maintain a certain standard of living in retirement. If you're used to spending $250 each month on groceries, but that same amount buys less over time (due to inflation), it may be difficult for your savings to keep up with your expenses.
Second, inflation can reduce the purchasing power of your wealth over time. For example: if an item cost $1 today, it'll probably cost $2 in ten years' time—but that doesn't mean you will be able to buy two items with one dollar worth of currency! So while prices might go up overall during this period, they won't necessarily afford you more luxury or convenience than before.
After all, is said and done, what will you have left to leave your heirs?
How can you protect your estate plan from inflation?
The first step to protecting your estate plan from inflation is to ensure that it’s updated regularly. If you haven't had your will or other legal documents reviewed by an attorney in a few years, or if it's been more than five years since you began drafting them, consider bringing the matter up. If you've changed jobs or had a child/grandchild, for example, you should make sure that your will reflects those changes.
If someone has been named as the executor of your estate plan (the person responsible for carrying out all of its instructions), they should understand the importance of keeping it up to date. They also need to be willing to make any necessary changes when needed; otherwise, these documents may not reflect what has become true over time.
The second step is to invest in assets that tend to hold their value better during periods of inflation, such as real estate or other commodities. This can help offset the effects of inflation on cash-value investments like stocks and bonds.
Estate planning helps you protect your assets and ensure they are passed down to your heirs per your wishes
Estate planning is the process of choosing the best way to leave your assets to your loved ones. While that's true, it can also help you and your heirs avoid unnecessary taxes when transferring assets during life or after you pass.
Estate planning involves several steps:
- Naming beneficiaries for each asset (for example, bank accounts and retirement plans)
- Creating documents stating instructions for managing those assets before and after death
- Selecting someone to manage your affairs if you become incapacitated
You can invest in assets that tend to hold their value better during periods of inflation
Discuss hedging against inflation with assets that tend to hold their value during high inflationary times with an experienced CFP®. Depending on your risk tolerance and investment portfolio, your selections should be made carefully with advocate advisors at Global View Investment Advisors. Many investors choose a mix of assets such as:
- Real estate
- Other commodities such as oil, corn, or wheat
- Stocks and bonds
It helps to know what kind of investor you are when it comes to asset selection. Do you prefer investing in something tangible for peace of mind, or are you open to other alternatives? There’s no one-size-fits-all approach, nor should you or your estate plan be treated as such.
We believe one of the best places to invest during a high inflation period are in quality, well capitalized companies providing producs and services consumers need, regardless of the condition of the economy.
Take the impact of inflation seriously when putting together your estate plan
If you don't plan for inflation, your assets will lose value over time, and you could end up with less money than intended. To protect against this, it's essential to look at the state of the economy, how prices are changing, and what kind of inflation rates to expect in the future. Better yet, have a fee-only, fiduciary firm in South Carolina that serves investors nationwide do it for you (we have much experience in this arena).
Once you know how much money needs to be set aside for each specific need, that amount can be adjusted based on what inflation has done since the plan was created.
Talk to a fee-only financial planner in Columbia, SC, or Greenville, SC, about how best to protect your estate from the effects of inflation
Informed investing is the ultimate way to protect yourself against inflation. If you're not sure how to invest/where to start, or if you feel it’s time for a second opinion, our certified financial planners in Greenville, SC, and Columbia, SC would be honored to assist as your advocate advisors!
There are so many things to consider whether you’re retiring in Greenville, SC, or traveling the countryside. It may seem overwhelming initially, but with an experienced fee-only investment advisor by your side, you'll be able to rest easy knowing that someone has your back through the economic ebb and flow!
The bottom line is that inflation is something you need to think about and plan for. You can't just assume that your estate plan will be shielded from inflation—a CERTIFIED FINANCIAL PLANNER™ can help do that for you.
If you don't take steps now, it may be too late for any action on your part—call Global View Investment Advisors today.