Personal Finance column: The $2,797 lift ticket
On Friday, Dec. 15, Snowmass celebrated its 50th anniversary with the opportunity to purchase lift tickets for $6.50. Today’s price of an advanced purchased ticket is $135, reflecting a 6.25 percent rate of inflation in the price of a Snowmass lift ticket.
This illustrates the importance of incorporating inflation into our financial planning goals. The price of all products and services will cost more down the road. We just don’t know how much more. Over the past 10 years, inflation has been very tame at less than 2 percent a year. However, remember the double digit inflation of the late ’70s, early ’80s? The cost of a gallon of milk in 1970 was $1.20. In 1982 it was $2.24.
Consider the consumer price index, and how it measures the change in prices of a basket of consumer goods and services commonly purchased. It is used to make adjustments in the amount of Social Security benefits received as well as other pension distributions. However, it doesn’t reflect all goods and services.
Does everything inflate up at the same rate? No! Health care costs have gone up at a higher rate than normal inflation, as have advanced education.
For those of us planning for our financial future, how do you invest wisely to overcome a 2 percent inflation rate or a 6.25 percent inflation rate over time? How do you maintain your purchasing power to afford the quality of life you want? Here are five ideas.
Not Every Ski Slope Is Made Equal
Create financial savings buckets for different goals. Create a lifestyle bucket which incorporates spending for your day-to-day expenses. This will include mortgage or rent, food, clothing, and basic entertainment or other expenses. You need to have a health care bucket, which are expenses above and beyond what your insurance, or Medicare, will be paying for. You want to have a bucket for long-term care needs. Do you want to age in place, in the comfort of your own home? What expenses will you incur with that choice? Do you have advanced education for yourself or a family member in your future? Large purchases or unexpected spending shocks will be a part of your future.
Don’t Rely on One Chair Lift
Create appropriate asset-allocation and diversification within those buckets based on your time frame, your goals, the appropriate amount of inflation you may encounter over time, and what market risk you are willing to take to overcome inflation risk. A goal that you are saving for in the short term won’t need to overcome much inflation and should be very conservatively positioned.
Seek Shelter from the Tax Storm
Take advantage of tax-sheltered vehicles when possible. Taxes take a big bite out of your earnings. If you can shelter your potential growth over time and take distributions efficiently based on the types of tools you use, you will come out ahead. Qualified retirement plans, ROTHs, IRAs, annuities, life insurance cash value and 529 plans are all types of ways to shelter investment growth from current taxation.
Try Some Moguls Once in a While
Consider alternative investments that are created to overcome inflation.
• Real Estate Investment Trusts (REITS). Investment companies create groups of real estate that throw off dividends and have the potential to grow in value. They are designed to provide income that helps keep pace with inflation, because rental increases are built into their leases.
• Commodities that work independently of currencies. Oil, solar, gold, silver, timber, wheat and land are all examples of commodities and provide good hedges against inflation.
Hire a Ski Instructor
• Get professional advice. In order to make the most of the tools, techniques and temperaments to maximize your potential to overcome inflation, get good advice — sooner than later. Obstacles come in many forms — implementing the proper protocol and making strategic changes as your life seasons and the economic seasons unfold will keep you headed in the right direction.
Looking forward, if you are planning on skiing on Dec. 15, 2067, set aside $135 away today in an investment that will earn you at least 6.25 percent after taxes in order to show up at the ticket kiosk with $2,979 for your day on the slopes.
Danielle Howard is a certified financial planner, author, speaker and financial thought leader. Read her book ‘Your Financial Revolution — Time to Recognize, Revitalize, and Release Your Financial Power.’ Visit her at http://www.wealthbydesign4u.com, or http://www.daniellehoward4u.com. Advisory Services offered through Cambridge Investment Research Advisors Inc., A Registered Investment Advisor. Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Cambridge and WBD are not affiliated.