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Will Inflation Derail Your Railroad Retirement

Tier 1 Tier 2 Retirement Financial Planning


Will inflation damage your railroad retirement.

Welcome everyone to another edition of Highball Advisors railroad retirement whiteboard. My name is John McNamara of Highball Advisors. And today I'm going to talk about inflation, right? You've been hearing a lot about it in the news and, and I thought I'd do a video on how it, how you can see how it's going to affect your retirement and what you can kind of do to prepare for it, to kind of offset it. I don't know if you can ever completely offset it, but it's I'll give you some tips and some pointers on what to do, but first let's step back, you know, for those, you know, what is inflation? So inflation is the cost of goods and services, right? How much? And normally inflation is the amount of goes up every year. You can actually have deflation where they go down every year, but we haven't seen that. But inflation, right? So normally prices go up around two to 3% in general, right? Food Uh clothing, energy,

Those types of things, two to 3%. Obviously we've seen other things go up much faster than inflation, you know, the costs of college or healthcare, that type of thing. But in general, the cost of goods and services been rising lately, or 2%, 3%, you know, the federal reserve tries to keep it in check, keep it around 2%, however, okay, we're coming out of a pandemic and a lot of money on the sidelines, government throwing a lot of money else around. So all this money is chasing a finite number of goods and services. Hence the prices are rising. So they're now we're now up to a 4.2% inflation rate or from the last month of April's numbers. Fact we're actually saw, I think all those were up 10% for a month. I mean, imagine that, oh my God. So as you see, there's inflation going on, so let me give you an example of inflation and how it affects your investing. So let's say you had $10,000 and put it in the bank. He got 1%, okay. The bank gave you 1% of the right. So if you had inflation at running at 3%, your real rate of return is I got 1%, but I lost 3% is a negative 2%. So that's the power of inflation. It can really be damaging and crippling especially in these artificial low rates, for sure.

So that's, that's the example of inflation, but as railroaders, let's see how we can address it, where our weaknesses are, what are we going to need to do? Right? So this is kind of my railroaders guide to inflation. So tier one, right? That first part, that kind of replicates social security, that's going to move with inflation. So we're okay on that because every year the CPI consumer price index number will come out and they'll adjust your your monthly payments to the CPI number. So that's all right. We can sleep on that. Now, tier two only moves at roughly about a third of inflation. So inflation really starts heating up. Okay. Your tier two, isn't going to catch up with what the CPI number is. It will move up. It's better than nothing, right? It's, something's always better than nothing, but it's it's not gonna move like the tier one.

And let's say you have a pension, pensions are set. They're not inflation adjusted. So you have no no wiggle room there. So if inflation gets out of hand, your pension is not going to keep up. So right now the last part of your retirement will be your 401k, your nest eggs, right? The money that you've saved, or other investments that you have. So here's some ideas on investments concepts, things that you want to think about as inflation heats up, right? So you have the inflation protected bonds. They're called tips. So they'll give you a return, but they'll also adjust with inflation. So the returns aren't great, but at least you're protected by inflation a little bit. So those are good. If you are investing in bonds, you know, short-term bonds, I'd prefer, you know, I like short term bond ETFs.

And why is that? Right? Because if rates are going to be going up to protect ourselves against inflation, you don't want to be in a 30 year bond or a 10 year bond. That type of thing. Well, my bonds at 1%, and now I could get 4%. So those bonds aren't going to be as valuable. So you could lose money on that. It's why short-term bond ETFs. They'll just keep short maturity type bonds because you know, diversification is always important. I say that. So if you're going to be diversified into bonds, think along the short term bond ETFs a house is always great, right? Lock in these mortgage rates really low, right? You've seen the price of housing going up, you know, what's going through the roof no pun intended, but that's a great place. Just, you know, put some money into your house to get protect against flesh stocks, right?

Another asset that's going to appreciate. I've been leaning more towards the consumer staple type stocks. Look at those things, things with purchasing, power, you know, pricing, power, that type of thing. So those are some styles. And then, you know, I've read a lot of articles. Everybody says gold. I'm not, I'm not so big on gold. To me, gold is kind of a fear type index. If there's a geopolitical event or I don't know what's going on, but that's kind of more on gold. I'm not sure how great it is as an inflation protection, but I put it up there for some people you hear about all the time. I, yeah, maybe it's worthwhile. I don't know.

But you can have a look at that. So this is kind of your guide. This is how you want to think about inflation and your railroad retirement. All right. So feel free to reach out to me. If you want to go over some of these points, you know, go through my boarding for railroad retirement process. This will kind of help you address some of these inflation concerns that you might have. As always, please subscribe to the YouTube channel click on the notification bell at the bottom of the you'll get the latest videos. As I put them out weekly, it also keeps sharing the videos. It's great to see them being shared and a lot of great comments from railroaders from all across the country. So everyone please till next time, stay safe, stay on track and take care. So long everybody. Bye.


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