Managing Your Plan Amid Inflation Shifts
February inflation data was released last week, showing signs of stabilization. Consumer prices were up 2.8% in February from a year earlier, per the Labor Department (Wall Street Journal). However, this could change with the introduction of new tariffs in the coming months.
A slightly higher long-term inflation rate is unlikely to derail most retirement plans, assuming historical market returns hold. However, those who rely on fixed income sources may face greater challenges, and retirees with structured spending plans could feel increased financial pressure.
For many, it is not inflation or market performance that derails a wealth plan over the long term – it is spending habits. Reviewing cash flow projections often reveals the significant impact that higher spending rates can have over time.
There are a few counterbalances to inflation. Marginal tax brackets are indexed for inflation – meaning that if income remains unchanged from last year, taxpayers could see a lower effective tax rate. Additionally, higher contribution limits for retirement plans, including catch-up contributions, provide an opportunity to defer taxes on more income. Borrowers with fixed-rate debt, such as mortgages, may also benefit, as the money repaid over time is worth less than the amount originally borrowed.
It is possible to model scenarios that incorporate higher long-term inflation and adverse market conditions to assess the impact on a wealth plan. For this exercise, we recommend providing updated income and spending data to your Wealth Manager.
Please reach out to your Wealth Manager with any questions about inflation.
Weekly Commentary
Wealth Planning Commentary – March 17, 2025
Managing Your Plan Amid Inflation Shifts
February inflation data was released last week, showing signs of stabilization. Consumer prices were up 2.8% in February from a year earlier, per the Labor Department (Wall Street Journal). However, this could change with the introduction of new tariffs in the coming months.
A slightly higher long-term inflation rate is unlikely to derail most retirement plans, assuming historical market returns hold. However, those who rely on fixed income sources may face greater challenges, and retirees with structured spending plans could feel increased financial pressure.
For many, it is not inflation or market performance that derails a wealth plan over the long term – it is spending habits. Reviewing cash flow projections often reveals the significant impact that higher spending rates can have over time.
There are a few counterbalances to inflation. Marginal tax brackets are indexed for inflation – meaning that if income remains unchanged from last year, taxpayers could see a lower effective tax rate. Additionally, higher contribution limits for retirement plans, including catch-up contributions, provide an opportunity to defer taxes on more income. Borrowers with fixed-rate debt, such as mortgages, may also benefit, as the money repaid over time is worth less than the amount originally borrowed.
It is possible to model scenarios that incorporate higher long-term inflation and adverse market conditions to assess the impact on a wealth plan. For this exercise, we recommend providing updated income and spending data to your Wealth Manager.
Please reach out to your Wealth Manager with any questions about inflation.
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