Planning Your Retirement without Worrying about High Interest Rates, Inflation or Income Taxes

If you are planning your retirement, you don’t want to have to worry about sky-high inflation, interest rates going through the roof or astronomical income taxes plaguing you for the rest of your life. I spoke to Don on Friday and he was worried about all three.

He made the following arguments:

1. The government is piling up record levels of debt.

This, unfortunately, is true.

2. In order to make up for the shortfall, the blockheads in Washington will print money like Willy Wonka produced chocolate. Our “leaders” may not have any Oompa Loompas available to man the presses, but they do have the ability to print up as much green stuff as they want.

Yes again. This is a likely scenario and indeed, it’s highly inflationary.

3. In order to punish all the very bad people who actually make money (and also in order to help make up for the spending deficit) the government will likely increase income tax rates.

Trifecta! Yes…this is also a likely result of the kind of “thinking’ that’s been going on in Washington for the past several years.

So why did I tell my client not to worry about these problems?

Because if you examine the facts, you’ll see that these kinds of problems are transitory. And if you’re investing for income, you have to consider that as well.

Yes…it is highly likely that we will experience periods of higher inflation, income taxes and interest rates. But it’s highly unlikely that we’ll be saddled with those problems forever.

I think Don was right to be concerned about these realities in the short term, but I believe he made a mistake when he concluded that these problems would plague us for the next 10, 20 or 30 years.

The graphs below tell the story:

Wikipedia

TruthandPolitics.org

You can see that interest rates, inflation and tax rates gyrate and change. They don’t stay in one place too long.

Why not?

Because people who live in democracies get to throw policy makers out once we get good and sick of their idiocracy (a new word I think I just made up – but useful).  There is also this little thing called the “business cycle,” which even the clowns in D.C. have been unable to completely destroy – at least so far.

Bottom line, it makes a lot of sense to be concerned about higher inflation, interest rates and tax brackets on the immediate horizon. But if you convince yourself that these problems are here to stay, you are ignoring the facts.

So when you think about planning your retirement and you’re looking for retirement solutions, please keep in mind that you’ll likely experience many cycles of high and low interest rates, tax brackets and inflation.  You can’t predict when these periods will be or how long they’ll last.  But you can plan on them coming and going.

Do you buy my argument, or do you think inflation is just around the corner and when it gets here, it’s here to stay?