The Silent Killer
“The great long-term financial risk isn’t loss of principal , but erosion of purchasing power.” –Nick Murray
Inflation is like high blood pressure. It’s the silent killer. Many retirees and those nearing retirement are far too concerned with loss of principal than the gradual and irreversible erosion of purchasing power through inflation. Many people in this age group are invested far to conservatively. By trying to avoid losses, they actually experience what they fear most. Their conservative portfolios can’t withstand the effects of withdrawals and inflation. They run out of money far too early in retirement. These conservative portfolios that didn’t fluctuate much led them to a false sense of security. It’s a sure fire way to go broke slowly.
This is a great article by Eric Nelson where he explores this in much more detail. Definitely worth the read to help us all shift our thinking from principal risk to purchasing power risk. THE BEST RETIREMENT PORTFOLIO HAS MORE STOCKS THAN YOU THINK
Unfortunately, there’s no free lunch in retirement. Given that the average couple’s retirement could be 25 to 35 years there’s just no way around it….you just got to have a higher allocation to stocks than what you think (or what you want).