Inflation is here. As in the Spring, the most recent CPI inflation report showed that prices rose across the board in July. By a lot. (See recent Kiplinger's forecast).
Over the course of the last 12 months, prices climbed 5.4%, according to the Bureau of Labor Statistics (BLS), and 0.5% in July, which follows June's increase of 0.9%. The indexes for homes, food, energy and new automobiles were key drivers of inflation growth last month. Of course, those items are key to the basic financial life of Americans, thereby stretching their bottom line.
Even when you strip out volatile food and energy prices—so-called core CPI inflation—prices rose by 4.3% during a rolling 12 months, or about 2 percentage points higher than before the pandemic.
Forbes Advisor reports certain items contributed mightily to these historic gains, as anyone who’s been shopping for an automobile recently can attest. New cars and trucks were 1.7% more expensive in July than in June, continuing an expensive trend. Energy prices rose 1.8% while gas prices alone rose 2.4%, just in time for the summer vacation season
How are you helping your clients manage high inflation through retirement? Typically, when solving for retirement income, we aim to provide the client with the best income available. In most cases we have provided a guaranteed level income stream that a client can not outlive. But with inflation on the rise, will it be enough? Two things to consider, increasing income solutions (there are a few that are a great value) as well a tax-free supplemental income.
There are certainly some pros and cons to an increasing income solution. Your clients should expect to see less income in the early years as the income starts at a lower distribution percentage than level payouts. However, if the index chosen provides a positive return, you will see a correlation between the return and increased income payouts. When supplementing the income stream with a secondary tax-free income, you will put your clients in the best position for their dollars to last through retirement.
Sources: Kiplinger.com (https://www.kiplinger.com/economic-forecasts/inflation) Forbes.com (https://www.forbes.com/advisor/investing/why-is-inflation-rising-right-now/) Bureau of Labor Statistics (https://www.bls.gov/news.release/pdf/cpi.pdf)