Recent news that the Social Security cost-of-living adjustment for 2017 amounts to 0.3% or about $5 for the average retiree doesn’t help much in paying the bills.
The rising cost of living is a major concern to many Americans. And, there appears to be a mismatch in how the government rates inflation versus the costs that people are actually paying for a number of key goods and services. In a climate of rising prices, gold tends to shine as a safe haven for investors who look to protect the value of their purchasing power.
When it comes time to calculate cost of living adjustments for Social Security, the government uses the CPI-W. This data gives less weight to medical care and housing costs. These are two categories that have climbed by more than 7% and 5% respectively over the past 12 months.
While official government numbers show that inflation remains historically low, the costs of many goods and services is increasing. That is normal. Throughout the past 100 years, the rate of inflation has been volatile ranging from 18% in 1918 to almost 24% in June 1920. The 1979-1981 period saw double-digit inflation numbers as well.
Despite the wide range, the average rate of inflation over the last 100 years is around 3% per year. That simply means, on average, things cost 3% more each year. There is a mathematical principal that can easily show how long it takes for prices to double.
The Rule of 72
72 / 3% inflation rate = 24 years until the price doubles
This shows that the overall cost of living doubles on average every 24 years. For those who plan to retire 25 years from today will find a world where everything costs double what it does today.
Let’s look back at some historical prices. How much did a loaf of bread, a gallon of milk, a house and a car cost in 1914?
We all know a dollar doesn’t buy what it used to. The value of paper money rises and fall, especially as central banks have flooded the world’s money supply in recent years. When the U.S. dollar declines in value that means you can purchase less with it.
According to the Rule of 72, the cost of your current lifestyle today will cost twice as much in U.S. dollars in 24 years. The same lifestyle the same gas for your car, dinner’s out, occasional trip to the movies will cost twice as much.
Gold is a time-honored inflation hedge. If inflation were to rear its ugly head again and soar to double digits, gold holds its value and often increases during inflationary periods. As a hard asset, gold is negatively correlated to both stocks and bonds. Throughout history gold has proven to be a reliable vehicle to protect the purchasing power of your dollars. Is your portfolio properly hedged right now?
Call Blanchard today at 1-866-764-9135. Our portfolio managers would be happy to design an individualized inflation protection plan for you.