Marc Killian 0:44
yeah, man. Well, look so inflation, obviously, we all got smacked in the mouth for the last couple of years by it, right? And the last year, you know, they claim the numbers have come down. I still, you know, people still feel it in different pockets depending on what you’re buying. And we’ve talked many times about the CPI indexes and which one they use, and which one and all that kind of stuff, you know, being there. But I think if you just remove all the kind of fluff and the political whatever, how is inflation like changing people’s truly, their their thought process, right? Because for many years, people didn’t even think about inflation affecting their retirement outcome, right? You save your money, you do your stuff, blah, blah, blah. And last couple years, you know, a lot of advisors getting calls, people going, Hey, are we going to be okay with this, with these extra expenses?

Jude Wilson 1:32
Well, you probably had the same experience I did with growing up as a kid and listening to your parents. I remember my dad once said, you know, cars are so expensive these days, I bought my first car for $5,000 and as a kid, I looked at my dad like, Geez, how old are you? Yeah, yeah, but, but now I’m having those similar experiences. I’m going car shop, bought

Marc Killian 1:53
your first house for $5,000 like my grandparents, right? You know? Yeah, you’re going car shopping. I don’t even want to know what is it? $80 Oh,

Jude Wilson 2:01
man, it’s crazy. The cars that I’m looking at are a little bit less expensive than the first house I bought when I graduated from college, and it blows my mind. And I think our audience, and many people, they know of inflation from a big picture standpoint, they don’t really understand how that may affect their financial planning. And the basis I tell people, because many people have heard that, you know, you should figure inflation somewhere between 3% and 4% right? So I kind of like being right in the middle, about 3.5% so if you think prices are raising at about 3.5% imagine that the your cost of living today doubling in about 20 years. Yeah,

Marc Killian 2:51
that’s normal inflation. That’s normal inflation. Yeah, and

Jude Wilson 2:55
yeah and so that’s gonna take into some accounts the highs and some accounts the lows. But why is that important? If you’re close to retirement or cons are in retirement right now, there’s a strong likelihood that you’re going to live 25, to 30 years in retirement, right? And if you haven’t planned for the prices to double in your lifetime, then you’re going to be really hurting, you know, 1015, 20 years from that, oh, yeah, and,

Marc Killian 3:24
and, you know, so you’re thinking about, like, the crazy high inflation we’ve had. And I was going to ask you, what rate of inflation would you guys build into your plans and your portfolios? And you just kind of answered for us, like, three and a half percent. And people go, Well, shouldn’t we do higher than that? Because inflation had been so bad for a couple of years. But again, that’s you we have to assume that historically, that’s, those are one off bad situations, right? Absolutely, we’re going to have it from time to time, but ideally, you want to kind of stay in that three and a half percent range. And that does seem to be the consensus across, you know, the the financial services world,

Jude Wilson 3:58
yeah, because you’re, you’re, you’re absolutely right. You know, during COVID period and last few years, we’ve had inflation hit as high as almost double digits, almost 10, nine and a half, yeah, somewhere in Yeah, but, but we’ve had inflation growing at a little bit over 1% so you got to kind of take the average you and plan for that. But the other thing I think that gets confused is that you said in the beginning Yes, inflation has come down. I think people get very skeptical of that when they hear that on the viewers Yes, because what really is happening is the rate of prices going up has come down, just because in the inflation rate, as reported in the news, is lower, it doesn’t mean the prices that you’re currently paying are going to be lower. Yeah, nobody’s just a gift bags,

Marc Killian 4:49
right? Yeah? Manufacturers are like, I’m not, I’m not dropping the prices. It takes time, you know, like, no matter what your political slant is, and we talk about. The fact that we just going to try to talk about facts. You know, when you have people saying silly stuff where, I mean, we’re in, this is the end of January, and you have people saying, well, the price of eggs hasn’t come down yet with the new administration, it’s like, look, that’s not even, that’s not even feasible, right? You have to give things time, and part of that is buying power, like we wield that as consumers. So, you know, if we want prices to come down, we kind of have to make the manufacturer feel it a little bit in their wallet by not buying stuff, you know, in order to kind of bring things down so it all it’s truly is like, I always laugh and think about the Lion King and the circle of life. And really, economies are that way, right

Jude Wilson 5:39
for certain and so people are asking themselves, you know, particularly people that are close to retirement, well, how do I plan for that? Right? It’s not just, you know, hoping that your portfolio performs historic to the historic rates of return, right? SMP has done somewhere around eight and a half, 9% return,

Marc Killian 6:01
22% the last couple years. But yeah,

Jude Wilson 6:03
yeah, you said, Wow. You know that I really don’t have to worry about inflation, right? But again, that these norms or generalities don’t really help us when it comes to your specific situation, because when you look at how the S, P has grown. Most people in retirement are not going to be 100% in the SAP, right? They’re not going

Marc Killian 6:24
to get, yeah, 22% right? Somebody’s like, well, I did 22% or 24 or whatever the final number was, you know, for the last couple years, and it’s like, well, how come I didn’t get that? Well, because you didn’t want to have 100% at risk, right? Exactly. There’s a disconnect there where it’s like, well, no, I don’t want to risk 100% in case it falls. Well, that’s why you didn’t get the 22 Exactly,

Jude Wilson 6:43
and that’s why in you and I have talked about this before, the two solutions that we use in helping people not only plan for income for life, but to plan against inflation, and we haven’t even talked about how taxes play into this. The two solutions that we use, one is the bucket plan. Okay, so we’ve talked about the bucket plan before, and the three different buckets. Your now bucket is your cash on hand and any major expense that you plan on having within the next 12 months or so, right? For me, it’s a new car. So a new car set aside for that your soon bucket is, if you’re in retirement, is the money that you have set aside to pay that income to the now bucket to refill that on an annual basis, right? And the way that we try to structure the soon bucket is to price in inflation over a certain period of time. Okay? So if you, if you need $100,000 in income, that soon bucket should provide not only the $100,000 that you need in income, but should also price in the potential inflation coming over time, right? And then lastly, your later bucket that we’ve been actually kind of talking about with the with the rise of the market. That later bucket is your typical investments that you may have in your 401, K now that are going to go up and down with the market, but you’re trying to get that, that higher rate of return, and historically, if you can get, you know, 6% return in that later bucket over 12 years, whatever is in that later bucket is going to double. So if you start off with a with a million dollars in 12 years, if you average 6% you should have about $2 million in that later bucket. And the it’s not only great to see that that growth, but it future proof, proves the income that you may need, because we can use that later bucket to fill the soon bucket and to provide for cost of living adjustments, yeah, as we go along. Yeah. So talking

Marc Killian 8:50
a little bit about that doubling, kind of the rule of 72 right? So people might heard that before, and that might have sounded a little familiar there. So it’s like, you know, a return of six to 10% which is, again, kind of average, you know, over a certain period of time, will allow that money to double, right? And so thinking about your you started out talking about inflation will also chip away. So that’s why they have to kind of work together. Because over 20 years, you know, if it’s costing you $5,000 a month to live in retirement, you know, this month and this year. Well, in 20 years, that 5000 will probably be 10,000 because of inflation. Well, same thing with the rule 72 doubling that money, you want to make sure that it’s growing at that rate as well so that you can get where you need to be. And that’s why it’s, it’s, it’s, it’s synergistic, right? They have to kind of work together, right? Very

Jude Wilson 9:38
because most people who are, who are just reading financial periodicals and and doing a lot of due diligence on them on their own, yeah, are thinking, Okay, I just, I have this one bucket of money, and I’m going to continue to invest the way I did in my 20s and 30s and 40s, right? I’ve gotten a decent return over time. But. But they’re not planning in for the downturns in the market. And they’re definitely not planning in for that, for that money to be to be taking about withdrawals. It’s one thing when you’re in an accumulation phase and you’re putting in money to that one bucket, but when you’re getting to the retirement phase, and you’re basically in what we call the distribution phase, you’re taking money out, you’ve not only have to plan for downturns in the market, but the withdrawal is basically a negative return. Sure. So that’s why the three buckets work so well, because every dollar is segmented, every dollar has a purpose, every dollar has a potential rate of return that we’re trying to achieve. And so it’s a well thought out, kind of like an all weather tire, if you will. Yeah, and to that point,

Marc Killian 10:47
and we’ll bring the Roth guy back around into this. Because if you aren’t thinking about those things, and you’re taking the withdrawals out, and you do have it in a regular like a 401, K, well, you got to share some of that money with Uncle Sam, too. So absolutely, that’s another. And you talked about taxes a minute ago. So right. So you’ve got to have this plan put together, and you guys have some different items on the website. We often let people know if they want to go download some of these items to kind of get them started. There’s a lot of good material at the tax bomb.com for them to check out. So go check some of that stuff out. And I know we’re going to add a new one there for this, this episode as well.

Jude Wilson 11:21
Yeah, so we’ve talked about how we address inflation when planning for retirement, but we also have to factor in taxation. And you and I have talked about many times that we believe that tax rates will double in our lifetime. So if you have your bucket plan put together. That’s one part. Part B is to have a tax strategy, because not all dollars are taxed the same, right? And we’ve got a plan for the potential for tax rates to go up, because that’s kind of could be considered a negative return on your dollars. Exactly to Uncle Sam. So when they go to the website, they can download not only our bucket plan diagram, but they can download our tax efficient funnels. So we’ve got buckets on one end and funnels on the

Marc Killian 12:09
funnels. There you go, exactly. Well, go to the tax bomb.com and click on the Roth guide tab, and we’ll just have that linked in the show descriptions below, so you don’t have to worry about doing any drop down menus. But it’s the tax bomb.com/the, Roth guy. You’ll see downloads and resources available there that you can get a hold of. And again, we’ll just put that link in there for you to make it nice and easy to go check that stuff out and at the end of the day, right? You know. So if we’re talking about inflation, you know, trying to, you know, deal with that in 2025 hopefully, you know, we’re going to start to see energy prices come down, that’s going to have that trickle down effect, that’s going to start to hopefully lower prices on consumer goods, but it is going to take some time, right? And if you’re close or nearing or at retirement, you still want to make sure that your strategy is looking at not only the inflation side of things, but also the taxation side of things. So if you need some help, reach out to Jude and the team, get yourself onto the calendar and have a conversation again. We’ll have the links in the show descriptions below, so just click on that and get started today with with some help. So Jude, thanks for breaking it down, man, anything else that we need to touch on? No,

Jude Wilson 13:11
I we are putting people in the right direction to start off the year with being proactive, with some really good planning.

Marc Killian 13:18
Yeah, exactly. And if you need some help, well, Jude and the team at centers are here to help you, so just reach out to them. Get started today again. You can just go to the tax bomb.com or you can go to the main website. Again, we’ll have the links in the show descriptions below, and we’ll see you next time here on the Roth guy with Jude Wilson,

Walter Storholt 13:38
financial planning and advisory services are offered through prosperity Capital Advisors, PCA and sec, registered investment advisor with its principal place of business in the state of Ohio, centrist financial strategies and PCA are separate, non affiliated entities. PCA does not provide tax or legal advice. Insurance and tax services offered through centrist financial strategies are not affiliated with PCA. Information received from this podcast should not be viewed as individual investment advice. Product discussions and illustrations are hypothetical in nature and will vary based on many factors, including, but not limited to age, health, product insurance carrier and product design. You should consult the insurance carrier website and policy for detailed information for information pertaining to the registration status of PCA, please contact the firm or refer to the Investment Advisor public disclosure website, www.advisorinfo.sec.gov for additional information about PCA, including fees and services send for our disclosure statement as set forth on form, ADV from PCA, using the contact information herein, please read the disclosure statement carefully before you invest or send money you.

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