The financial media goes bonkers and sometimes goes totally bonkers. Warren Buffett, the sage of Omaha, and one of the world’s greatest investors, says, “Risk is not knowing what you are doing.” Risk is defined differently depending on each generation that you ask. Ask a baby boomer born between (1946 and 1963) and ask a millennial born between (1981 and 1996) and you will get varying answers. Risk as defined by my great-grandmother, grandmother, mother, and sister provides four different scenarios based on respective life circumstances. Pre-WWII depression era ancestors defined risk as losing all your money. Whereas, a baby boomer defines risk as running out of money. 

There are only two doors in retirement planning. Door #1 is where money outlives people. Behind door #1, retirees find dignity, independence, and legacy. Door #2 is where people outlive their money. Here you find no dignity or independence and legacy is out of the question. Thus, I define risk as outliving your money or in other words, running out of money before you die. 

Risk is indeed a four-letter word. Risk, in the context of investing money for a long-term personal objective such as retirement planning or education funding, is necessary for all to build financial assets to fund those objectives. The long-term risk of inflation eroding the purchasing power of a dollar far exceeds the risk of account loss most people use as an excuse for not investing or not staying invested during market downturns. 

In practice, I teach clients that market downturns are a normal part of being a long-term investor and being normal there are ways to take advantage of market downturns. Of course, loss is another four-letter word. The fear of loss is the primary reason preventing the accumulation of a long-term investment portfolio designed to provide a rising income which can outpace inflation. Remember: Rising Income Beats Rising Prices.

When your retirement funds are invested to grow at a rate which beats inflation in the long-term, then you truly build wealth to achieve your personal goals. We are all living longer. Thus, long-term investing is paramount to maintain purchasing power over an ever-increasing life expectancy. We must prepare to live more years in retirement. 

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I just celebrated my sixtieth birthday, looking back, everything has gone up significantly in price during my lifespan. For example, in 1970, my second-grade teacher gave me a dime and asked me to go to the teacher’s lounge and purchase her a soft-drink. You inserted the dime and opened the door and pulled out an ice-cold bottle. A dime is still 10 cents; however, last week while traveling, I paid $2.69 for a cold drink. Most of us can tell similar stories of inflation. 

I used to tell people if you paid more for your last car than your first house then I really need to speak with you. The average rate of inflation according to BLS, Factset and published in J.P. Morgan Asset Management, Guide to the Markets, March 31, 2023, using the Consumer Price Index (CPI) measure of inflation has averaged 4.0% during the last 50 years. 

Although inflationary pressures have been running higher than that average of 4% for the last couple of years, the real risk to funding our retirement is inflation. Please contact a financial advisor. Preferably, a Certified Financial Planner Professional who you trust and like and be sure your retirement plan has the right allocation for you to end up behind retirement Door #1: Money outlives People so there will be plenty of legacies.

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