Over the past 5 years, we have seen a "debasement of the currency," where the government is printing so much money, they are devaluating the dollar, says Dennis Farrah, financial advisor with the Farrah Tax Advisory Group in Aurora, Colorado. With so much money around, money is cheap today, he adds.
Once they stop the printing presses and reigning in the money, Farrah says the cost of that money is going to skyrocket and interest rates will skyrocket. At that point, there will be a significant rise in inflation and while a little is good, when you hit the 5-9% territory, it can be "devastating," which is what we saw in the 1970's.
While the federal reserve has made an inflation rate of 2% part of their policy, Farrah doesn't think consumers understand that point. Gas has risen 100% over the past 10 years, which is a 10% inflation rate just on fuel. Groceries has seen a significant increase in cost as well. A retiree on a fixed income sees groceries, heat and gas costs rising, which is devastating, says Farrah.
To protect against the rise of inflation, Farrah says it's important for a retiree to understand what inflation is. As prices go up, they need incomes that keep up with inflation, so they have to be in products that give them a guaranteed income but give them the rise in the annual inflation rate to make their income go up.
If you're on a fixed income with a private pension that pays you a certain amount a month and if the inflation rate is 5-9%, your income must go up by that amount of money just to stay even. Farrah says you have to be in products that offer those benefits.
If your retirement planner isn't putting you in products that offer you that inflation hedge, Farrah says it's time to look for another planner. Today, "it's more important than ever to seek out products that can keep up with inflation," Farrah says.