Inflation is the general rise in the prices of goods and services. As prices go up, the purchasing power of your money goes down. For example, if the annual inflation rate is 4%, that means prices will, on average, increase by 4% in a year. If inflation is 0%, prices will remain the same on average.
To keep up with the rising costs of goods, workers need to be able to command higher pay to make up for increases in their cost of living. When wages remain flat, workers must live with a decline in real after-tax purchasing power.
Inflation also has the potential to wreak havoc with your retirement dreams.
How Inflation Works
Imagine yourself sitting in the driver’s seat of a Formula One race car. The engine under the hood represents the economy. The tachometer on the dashboard, which goes up and down as you rev the engine, represents inflation. Your gears represent interest rates. When you shift up, interest rates go up, and when you shift down, interest rates go down.
You hit the gas and start driving. When you get up to around 2000, 3000 RPMs, the car is running smoothly…
But as the engine keeps revving, you move closer to the red line.
In economic terms, this means there is too much inflation, usually a result of more money printing by the Federal Reserve. When you’ve got the gas pedal to the metal, the result is too much inflation—and the engine is going to blow if you don’t do something.
One way to calm the engine down, so to speak, is to increase interest rates.
So you move up a gear (raise interest rates), which lowers the RPMs, and the economy continues to run smoothly again.
But when this new gear pushes up toward the red line once more, it means the economy is expanding once again because of printed money, and you must shift up to a third gear, raising interest rates to level out inflation.
In 2008, in order to prevent the housing bubble from collapsing, the Fed took its foot off the gas pedal entirely, allowing interest rates and inflation to drop to zero. The car slowed down and almost stopped in the middle of the road.
The Federal Reserve raised interest rates above 1% in 2017—the first time since the end of the Great Recession. After its meeting on November 8, 2018, the Fed announced that it would maintain the target range for its benchmark interest rate of 2.00% – 2.25%. Officials tout this as a sign that the economy is running along smoothly. However, there are talks of postponing more hikes due to fears of a trade breakdown with China.
The point is that this cycle of inflation and interest rates is never-ending, and while the cycle is predictable, the results are not.
7 Risks to Your Retirement
1. Quantitative Easing (expanding the monetary base with more printing)
Quantitative easing is an expansion of the open market operations of a central bank. The idea is to stimulate the economy by loosening up credit—making it easier for businesses to borrow money. The central bank does this by buying securities from its member banks to add liquidity to capital markets.
Here’s the thing. The central banks don’t actually have the money to buy these securities. It’s imaginary money—created out of thin air. They simply add the same amount they paid for the securities to their credit on their books.
Only central banks have the power to do this. The effect is the same as the Fed printing money. It’s money that doesn’t really exist. Often when you hear people talking about the Fed “printing money” this is what they mean.
The most recent time the Fed launched quantitative easing was between December 2008 and October 2014, adding $4 trillion of this imaginary credit to the money supply. Though the Fed didn’t actually print 40 billion $100 bills and mail it to the banks to lend out, it had the same effect.
In 2017, the Fed began to reverse this through “quantitative tightening”—letting securities roll off of the Fed balance sheet. However, in February of 2018 it appeared that $14.1 billion in assets were added back on. Has the Fed fired up the money printing machine again? Opinions differ, but it’s a real possibility.
The point, again, is that this cycle of dealing in imaginary money is continual…and what happens when that imaginary money doesn’t work anymore?
2. Unprecedented market risks
The problem isn’t just in our own markets, either. This risk is not just at home in the United States, but applies to the entire global economy.
Goods are still coming in from offshore because we print money and ship that money abroad. In other words, we get their stuff and they get our paper. We’re dealing in Monopoly money and IOUs, with massive amounts of debt between countries.
But once foreign bondholders decide to stop financing our debt and accepting our paper, they won’t loan the U.S. another penny until they get a far greater return for their investment.
And when this happens, it could drastically increase prices for products Americans use and consume every day.
3. Higher prices hurt your standard of living
As inflation goes up, your dollar rapidly loses its purchasing power. You don’t have to be an economist to notice that prices for goods and services are increasing, while wages for many people aren’t keeping up.
And when the Fed announces it can no longer print enough money to keep up with inflation, prices for everything around you will rise substantially.
When President Franklin D. Roosevelt’s New Deal passed in 1933, the average life expectancy was only 63 years.
In 2016, the average lifetime is expected to be 78.
And in 2050, it is predicted to be around 88 years of age.
Social Security checks will pay less and less over time, so it’s very important you have a plan already in place to protect your retirement portfolio.
Will your retirement assets still be there when you need them? As inflation rises, will your retirement dollars cover your cost of living?
If you are seeking to safeguard the lifestyle you’re accustomed to in your retirement years, then owning precious metals—real, tangible assets—is a way to give yourself peace of mind in volatile economic climates.
5. Unexpected expenses
As the purchasing power of your dollar continues to go down, it will become harder to pay for your expenses.
You might run into unexpected expenses that come along like:
- Home repairs: A new heater, replacing the leaky roof, or fixing any number of plumbing or electrical issues
- Air conditioning or sprinkler systems you need fixed
- Car repairs and maintenance
- Emergency medical procedures for you or your spouse
- Expensive drug costs and co-pays (especially as you age)
- Home care, nursing care or assisted living expenses for you or your spouse
- Paying for regular bills and expenses you’ve always been able to cover
In fact, millions of Americans who’ve never experienced a hard day in their life are already finding it increasingly harder to get by.
- People are finding it more difficult to go out to eat and socialize with friends
- People are cutting back on their dreams of purchasing a second home or traveling the world in retirement
- People are pushing back the date of their retirement or having to continue working part-time, when they should be enjoying their retirement years
One way to preserve your purchasing power—so you can pay for these unexpected expenses—is to transfer your paper stock or bond IRA into a secure West Hills Capital gold or silver IRA.
6. Higher taxes
As inflation sets in, the government will only have two options:
- Reduce the money supply and overall size of government
- Raise taxes
Of those two choices, which one do you think will happen?
As you already know, if your taxes go up, it will take a bigger bite than ever out of your income and spending power.
7. Higher rates for your mortgage and other loans
When interest rates go up (as a result of the Fed trying to control inflation), the cost of your home mortgage and the costs for borrowing money for just about anything will go up too.
For homebuyers considering a fixed or floating-rate mortgage, it is important to understand how rising rates can affect these choices.
These rate hikes could take even more money out of your pocket.
Have You Properly Invested in Precious Metals for Your Retirement?
Instability in the U.S. and in world economies—with the elements of both inflation and deflation—present ever growing risks for traditional investment strategies.
At the same time, the mechanics of retirement have changed because of unprecedented market risks, rising prices, greater longevity, and greater demands on wealth.
Will your retirement assets still be there when you need them?
Investors seeking to protect their portfolio from these and other dangers are transferring a portion of their fragile stock and bond IRA into a secure gold or silver IRA with West Hills Capital. Real, tangible assets are a prudent way to protect your purchasing power and preserve your wealth against inflation.
Call (800) 867-6768 to get started with your NO FEE transfer to a tax-deferred gold/silver retirement savings. At West Hills Capital, you’ll find your transfer from paper to gold or silver IRA hassle free—easier than you imagine.