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Guarding Your Wealth for Senior Citizens
United States Has a Cancer and Senior Citizens are
Most Vulnerable
U.S. to see a long period of inflation, maybe higher
than 1966 - 82
By Jeffrey D. Voudrie, CFP
 July 13, 2007 - Inflation is like a cancer that
eats away at our standard of living. And those most vulnerable to
inflation are retirees and near-retirees. I believe we will experience a
damaging level of inflation over the next 10-20 years. If that’s true,
then action must be taken today to protect your way of life. Read on to
see why.
Here in northeast Tennessee, the price of milk
rocketed up 30% in just a few days. Imagine if you only had $10 to buy
groceries each week and suddenly the price of milk went from $3.00 to
$4.00. That is inflation. It takes more money to buy the same thing.
Now imagine if the price of all groceries went up
30% in a short period of time! Can you see how dramatically that could
impact your way of life? The necessities of life now take much more of
your fixed income than they used to, so you have to cut back.
I believe that we in America will see a prolonged
period of inflation much like we did between 1966 and 1982. The rate of
inflation may even be higher, much higher. It’s happened to Germany,
it’s happened to many countries in Asia and South America. It occurred
in Mexico. And it even happened in Great Britain.
In all of those countries, rampant inflation was
the result of debt. A government basically has four choices for dealing
with an unsustainable debt problem. It can default on its debt, raise
taxes, cut spending, or inflate the debt out of existence. Those are the
choices faced by our nation.
Default isn’t an option. We can raise taxes and cut
spending, but both would have to be done so drastically that it would
leave our economy in shambles. Even then it would take decades to pay
down the debt. Or, we can inflate our way out.
Inflation makes debt easier to pay off. For
instance, let’s say I earn $50,000 a year from my job and I buy a home
with a mortgage payment of $1,000 a month ($12,000 per year). That means
it takes 24% of my earnings just to pay my mortgage.
Five years later, working the same job, I’m getting
paid $60,000. They call it a cost of living increase. Really, it’s
inflation. Anyway, my mortgage payment remained the same. Since I have
more income and the same mortgage payment, it’s easier to pay. Now it
only takes 20% of my income, leaving me 4% to spend on something else.
That’s how a nation can inflate debt out of
existence. They print more money. As consumers it affects us because the
price of milk goes up. It gives the government more money, though, to
pay their ‘mortgage’.
Think about how quickly our national debt is
growing—it increased 9 times between 1990 and 2006. We’ve borrowed $3
trillion dollars over the last 10 years because we bought more from
other nations than we sold. And that gap is still increasing. That $3
trillion will double to $6 trillion in just 4 years based on our current
trade deficit!
Which of the four options will our government
choose? I believe it will pursue a combination of raising taxes, cutting
spending and spurring inflation.
There are many ways it can raise taxes. For
instance, in the late 1990’s a law was passed creating Roth IRA’s.
People were allowed to convert their traditional IRA to a Roth, but they
would have to pay taxes on that money. The law allowed that tax to be
spread over 5 years so a lot of people did it. That produced a huge
amount of revenue because the government received taxes over 5 years
that would have otherwise taken decades to collect.
The government can also cut spending. I believe it
will do so by reneging on its promise to fully pay entitlements such as
Social Security and Medicare. Think it can’t happen? At one time they
said that they wouldn’t tax Social Security, now they do.
So what does this mean for investors? You can
preserve wealth in an inflationary environment by investing in the right
things. Hard assets and commodities should do well. So will assets owned
in foreign currencies. That’s why I’ll address inflation’s impact on the
dollar next week.
If you have a specific question or would like more
information, give me a call toll-free at 1-877-827-1463 or you can also reach me by email at
jeff@guardingyourwealth.com.
I will answer your financial question FREE.
About Guarding Your Wealth:
“Guarding Your Wealth” is a
nationally syndicated weekly personal finance column written by Jeffrey
D. Voudrie, CFP. Mr. Voudrie is the President of Legacy Planning Group,
a private wealth management firm that employs sophisticated proprietary
strategies designed to protect and grow its clients' investments. Visit his website,
www.guardingyourwealth.com to read past articles under the Guarding
Your Wealth Article Archive that may not have appeared in
SeniorJournal.com.
Guarding Your Wealth for Seniors, on
SeniorJournal.com, is
a collection of columns by Voudrie that deal with issues of particular
interest to senior citizens.
Click here
for all columns.
In addition to being a nationally
syndicated columnist and Certified Financial Planning Practitioner, Mr.
Voudrie provides personal, private money management services to select
private clients
nationwide.
Looking for an energetic expert who
is passionate about financial and wealth management? Mr. Voudrie is an
excellent speaker who will excite and inspire your audience. Mr. Voudrie
is available for a limited number of speaking engagements, television
appearances and radio talk shows. For bookings, email
jeff@guardingyourwealth.com.
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