Inflation: The Hidden Tax

By Carissa P. Elrick   •   PGI Financial Services, Inc.

Stopping at the grocery store to pick up dinner? Filling up at the pump? Signing a lease on an apartment? Looking for a new car? There’s one thing all these activities have in common today – rising prices.

Whether you are in your working years or your work-optional years, a major economic factor that must be planned for is inflation. The annual inflation rate as of the end of March of this year was 8.5% – the highest rate we have seen since the 80’s. At this rate, the price of everything doubles in eight and a half years. In order to ensure that you don’t run out of money during your lifetime, high inflation must be taken into consideration when developing a long-term retirement income plan – especially in today’s world.

At the very least, most people want their money to grow to keep up with inflation. But with inflation over 8%, and interest rates at the bank paying less than 1%, it can feel like we’re losing money just covering everyday expenses.

So why is inflation rising so rapidly? As a country, we are still overcoming the effects of the Covid pandemic, where supply and demand for consumer staples were not aligned, causing a shortage and price increase for many goods. In the midst of our recovery from this global pandemic, we see a war break out overseas after the invasion of Ukraine by Russia.

Historically, war and inflation go hand-in-hand, as the concept of scarcity comes into play. Consumers are genuinely concerned that there will be a shortage of something they are accustomed to purchasing on a regular basis, and they are willing to pay more to get their hands on it. Let’s use wheat for example. Ukraine and Russia are responsible for 1/3 of the world’s wheat exports. Since they have stopped exporting wheat, there is 1/3 less wheat for the rest of the world to work with – which has a ripple effect all the way down to the price of goods we’re seeing on the shelves at the grocery store.

The biggest concern of retirees is whether they will run out of money in their lifetime. There is a lot that goes into a Peace of Mind Retirement Income Plan, a large part of that being tax planning. But what about the hidden tax? If you need $6,000/mo. to live today, you will need much more than $6,000/mo. to live 10, 15, or 20 years down the road. Especially when we’re seeing inflation rates over 8%. It is critical to take inflation into consideration when planning for your future.

Carissa P. Elrick is a Financial Advisor at PGI Financial Services, Inc.

This article was featured in the June 2022 issue of Carolina Bay Neighbors magazine.


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