Planning on retirement? Beware of killer inflation

TSP is the one element in the TSP-FERS annuity-Social Security trio that is not fixed, or at least not tied to nominal inflation adjustments.

When you get to be my age, you read the obituaries.  And why not? According to the actuaries at the Social Security Administration, a male’s probability of death at the age of 22 is 0.001612. At 69, it’s 0.024325. If I calculated correctly, that means the probability of death at my age is 15 times greater than it was when I started my career. So, yeah, I check to see who’s checked out and missed retirement.

Nobody has a guaranteed tomorrow. That doesn’t mean you shouldn’t plan for a good retirement. Presuming you don’t climb 1,000-foot rock cliffs without ropes or scuba dive to pet tiger sharks, you can expect some good years after work. The Social Security figures show a man at 65 — the classic retirement date — will live on average another 17 years. A woman at 65 has another 20 years on average. In reality more and more are making it to 90 and beyond.

Why a retirement column today? With two weeks until the tax incoming filing deadline, people are thinking about their finances. Baseball opened yesterday, and wouldn’t it be great to get to those precious few day games without a lot of schedule rigmarole? Plus, given that most federal employees pick December 31st to retire, April 1 still gives you some time to get retirement affairs lined up.

I credit Thiago Glieger of RMG Advisors in Rockville, Maryland, and a regular Federal Drive guest, for the idea. He said his federal clients often knuckle down to retirement planning now, with the holidays, winter and tax filing behind them. My own two cents: Solid retirement planning is also good financial planning generally, no matter how far away your retirement.

Glieger says to think of retirement in three phases — go-go, slow-go, and no-go. Go-go, you’re still relatively young and active. This is when you pack in the more active or strenuous things you want to do while you can. Slow-go, you’re still okay, but maybe slowing down to enjoy more chilling, say with younger family members. No-go is later old age, which might entail assisted living or other forms of help.

You can’t control anything fully. Inflation, though, lies in the zone of totally uncontrollable. Glieger calls inflation the silent retirement killer. You can control how your react in terms of Thrift Savings Plan or 401K strategy. He cautions against substituting  the volatility of higher growth funds like the C  Fund or S Fund for the steadiness of, say, the G Fund, on which inflation will have the most corrosive effects.

In that sense, your TSP is the one element in the TSP-FERS annuity-Social Security trio that is not fixed, or at least not tied to nominal inflation adjustments. Certified financial planner Art Stein, also an alarm-ringer on inflation, points out that FERS and your annuity won’t run out, either, whereas you can wipe out your investments fairly easily. You might be tempted to take more from your savings if inflation reduces the buying power of your FERS annuity, Stein adds.

Like a noxious vapor, inflation seeps into everything.

So, don’t shy away from keeping relative to wide swings, “if you think about not growing your money fast enough, that’s also a pretty big risk. Over time, you may not be able to keep up with your spending,” Glieger said.

Any retirement plan must include a spending plan. Glieger cautions against underestimating what you’ll spend. Some people spend more when they retire; say, because of more travel. Plus, cars, roofs, furnaces and washing machines don’t last forever.

Or at least initially, you buy that bass boat or sewing machine or Beretta shotgun you now feel you’ll have the time to use. Therefore, you’ll want a TSP investment strategy that grows your nest egg at no less than the rate at which you take withdrawals. Or at least ensure the principal lasts until you’re 95 or 100. You don’t want to undershoot the runway.

Nearly Useless Factoid

By: Michele Sandiford

The ratio of women to men over 65 years old is 100 to 76. The ratio of women to men over 85 years old is 100 to 49.


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