Woodstock, Inflation and 3% of the Moon

July 26, 2019

Do you like history? Want to retire better?

If you’re over 50, and you look back at your life and our era, you’ve seen some amazing things.

The summer of 2019 marks the 50^th anniversary of some significant events.

Two that stand out are July 20^th, the date of our first visit to the moon, and August 15^th, which was the start of the Woodstock Music Festival in upstate New York.

While likely no one reading this landed on the moon (as only four living people have), at one time or another, some of you probably worked, directly or in an ancillary capacity, for the space program, either with Aerojet, with NASA, or with any of the thousands of contractors who contributed parts or expertise.

And for those of you who were either too young, or… were perhaps following a different path in 1969, with over 35,000 subscribers, we probably have some readers who either attended or at least know someone who made it to Woodstock.

Engineer? Music fan? Former or current hippy? Aside from being a Baby Boomer, what do you all have in common?

You’re either retired or you’re very close to being so.

How’d things look half a century ago?

In part, for perspective, and because it’s entertaining to reminisce, here are some average prices from 1969¹.

Back then, it cost:

$.35 for a gallon of gas
$2,000 for a new car
$40,000 for a new house

(Imagine paying $5 to fill up your tank with gas.)

Now, compare those prices from 50 years ago to 2019, and these same things cost:²

$3.00 for a gallon of gas
$36,000 for a new car
$400,000 for a new home

That, folks, is mostly due to inflation.

Defined, inflation is the rate the price of something goes up year-by-year and robs you of purchasing power. And purchasing power is the value of goods or services one unit of your money can buy.

So, simply, if on January 1^st each year, you always buy $10 worth of candy, due to inflation that $10 will purchase less and less candy each year.

When it comes to retirement, you hear a lot about investments, savings, and Social Security, but inflation often gets glossed over.

But consider this: Over the last 100 years, inflation has averaged about 3%. And over the last 20 years (between 1990 and 2019), it’s averaged an even lower 2.46% per year.

2-3 percent? That sounds manageable, if not forgettable.

And so, we could all just go to a concert (or watch a documentary on Apollo 11) and forget about it, couldn’t we?

Yet, because of inflation, you need $2,000 today to buy what $1,000 bought you just 19 years ago.³

And we find that more than a little noteworthy.

Here’s a common scenario.

Let’s say you’ve saved well and have accrued $1 million for retirement. You’ve allocated your investments in such a way that you manage to earn a total return of 6%, or $60,000 in income per year.

And $60,000 is exactly what your expenses are.

So, what happens next year?

As long as there’s inflation, all things being the same, first, because you’re losing more and more purchasing power each year, soon, your 6% return ($60,000) won’t be able to cover your yearly expenses.

But it doesn’t end there.

To cover your growing expenses, you’ll probably have to tap into your savings principal, and so your $1 million balance will start to decline.

That means that even if you still manage to realize a 6% return, it’s no longer on $1 million, and your yearly income will no longer be $60,000, all while inflation continues to drive up prices and push you further and further behind.

It’s a double whammy year after year after year.

Now, imagine this happening over a 30-year retirement?

Inflation’s impact on your money is understated, and it’s a big reason so many people who have saved well still run out of money years before they die.

So, what can you do about inflation?

If you’ve been saving, there’s hope. Put on your favorite music and let’s think this through.

First, if you work with us, you already know this, but if you work with someone else, make certain they are a fiduciary advisor and that they are fee-based.

We believe that specific combination provides you with the best advisory approach to meeting your goals.

That’s because, among other reasons, at this point in your life the last thing you need is investment advice that isn’t in your best interests or that has loads of hidden fees or costs.

It’s late in the retirement preparation game for mistakes, and those hidden fees add up.

Second, if you’re working with a reliable advisor, one who does comprehensive financial and retirement planning (and not just investment management), keep doing it.

That’s because when you consider budgeting, debt management, forward-thinking-and-money-saving tax planning, along with helping you establish (and stick with) realistic financial goals, all while avoiding behavioral finance (jumping in and out of the market), according to a study titled Advisor’s Alpha, people who work with reliable advisors can receive, on average, a 3% increase in their total returns each year.⁴

Simply, whether you’ve worked (or work) as a scientist, or you attended Woodstock, or you did both, working with a fiduciary advisor might just be your best bet against inflation.

^{1. http://www.woodstockstory.com/how-much-things-cost-on-average-in-1969/}

^{2. https://ycharts.com/indicators/average_sales_price_for_new_houses_sold_in_the_us}

^{3. https://www.wsj.com/articles/when-planning-for-retirement-dont-forget-inflation-11551387373}

^{4. https://www.investopedia.com/articles/personal-finance/102616/how-much-can-advisor-help-your-returns-how-about-3-worth.asp}

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¹Barron’s 2024 Top 100 RIA Firms. Barron's© magazine is a trademark of Dow Jones L.P. The ranking of independent advisory companies is based on assets managed by the firms, growth, technology spending, succession planning, and other metrics.

² Retention Rate Source: Allworth Internal Data, FY 2022

³ The NBRI Circle of Excellence Award is bestowed upon NBRI clients meeting one or both of the following criteria: Total Company score at or above the 75th percentile of the NBRI ClearPath Benchmarking Database and/or improvement of five (5) or more benchmarking percentiles in Total Company score over the previous survey.

⁴ As of 7/1/2024, Allworth Financial, an SEC registered investment adviser and AW Securities, a registered broker/dealer have approximately $22.5 billion in total assets under management and administration.

⁵ InvestmentNews 2020 and 2021 Best Places to Work for Financial Advisers. The ranking reflects survey responses and scores completed by both employers and employees. Employers report their organization’s workplace policies, practices, and demographics. Employees complete a survey designed to measure the employee experience.

⁶ 2021 Value of an Advisor Study / Russel Investments

⁷ Ranked 9th Top Wealth Managers By Growth in Assets in the U.S. from RIA Channel, 2022. RIA Database and RIA Channel are registered trademarks owned by Labworks, LLC.

⁸USA Today Best Financial Advisory Firms 2024. The ranking is based on the growth of the companies’ assets under management (AUM) over the short and long term and the number of recommendations they received from clients and peers.

⁹NBRI Best in Class Ethics 2023. The Best in Class level is bestowed upon clients performing at or above 90 percentile of the NBRI ClearPath Benchmarking Database.

^✢ Scott Hanson, Investment Advisor 2005, 25 most influential people in the financial services industry. The ranking reflects 25 people who Investment Advisor magazine believes have had or will have the greatest influence on the financial services industry.

^✼Pat McClain, InvestmentNews 2014, Invest in Others Community Service Award, presented to an advisor who has made an outstanding impact on a community through managerial contributions to a non-profit organization.

^†Financial Times, FT 300 Top Registered Investment Advisers, June 2019. The ranking reflects six areas of consideration including the company's years in existence, industry certifications of key employees, AUM, asset growth, SEC compliance record and online accessibility and calculates a numeric score for each company.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.