An unpredictable economy drives people to invest wisely

By Robert Harwood
Heritage Tax & Retirement Advisors, LLC

LARGO, FL – It’s hard to talk about inflation without sounding like an old geezer: “I remember back in 1940 when gas was only 18 cents a gallon!” But this is 2008 and times have dramatically changed. Less than five years ago we can remember the price of gas was below $2 per gallon. 

According to the U.S. Department of Commerce and a statistical abstract of the United States, in 1940, a loaf of bread cost 8 cents and a first class postage stamp cost 3 cents. By 1970, those prices had inflated to 24 cents per loaf and 6 cents per stamp. By 2002, inflation had pushed those prices to $2.99 per loaf and 37 cents per stamp. Today, the average loaf is $3 per loaf and stamps will be 42 cents this May.  As always, things will only get more expensive with time, and with the current slumping economy inflation seems to be inevitable.

Inflation is particularly hard on retirees living on fixed incomes, who experience inflation as the loss of purchasing power. Interest rates have been cut several times and are predicted to be cut again at the Fed’s upcoming March meeting. The certainty of inflation is driving the trend among today’s retirees to seek out more conservative alternatives. These retirement options combine better earning potential while providing “pockets of money” they can depend on.

According to the Administration on Aging, the median Social Security income in the median income of older persons in 2006 was $23,500 for males and $13,603 for females. This is not very much for people who are retired and living off their life savings. To supplement lost income, retirees can turn to “conservative” alternatives. These vehicles offer a guaranteed principal backed by the claims paying ability of the issuing insurance company and a reasonable rate of return.

One that has been popular with investors in the past is the fixed annuity. Fixed annuities typically offer competitive interest rates that remain tax deferred until interest is withdrawn, with the principal guaranteed by an insurance company.

Regardless of which retirement option you choose, consider following the Golden Rule of 100. The rule states that the percentage of assets you allocate into more conservative alternatives should be equal to your age, with the balance available for more risk-oriented investments. Over the long-term, this could help offset the effects of inflation.

Many of us paid less for our first home than we pay today for a new car. But times change and people must learn to adapt to these changes. Instead of simply hoping things will get better, get involved and be active in your financial health. If you are unsure of your financial picture or of where to find those pockets of money, talk with a pro. A qualified financial professional can help you sort through today’s choices and find the financial solutions that fit your situation.

Robert Harwood, the President of Heritage, was raised in the Tampa Bay area.  He has been married for almost 10 years and has two children, Sofia and Adam.  

Robert has earned a reputation as one of the top “Safe Money Advisors” in the Nation.  His informative articles have been published in magazines and papers nationwide.  He is also recognized as an authority on “Stretch” IRA’s, assisting his clients in preserving their assets as well as their children’s inheritances.   Robert has taught thousands of retirees how to protect and preserve their assets, increase their retirement income, and reduce their taxes.

Heritage & Tax Retirement Advisors LLC -- 13191 Starkey Rd, Suite 1 Largo, FL 33773 Tel. (800)989-1427