Inflation wants to eat your savings, but you can beat it


It’s a strange thing, inflation. Rarely will you hear so much about market downturns or risks. This is largely due to the fact that the market can lose large amounts quickly, in a very visible way. Inflation, on the other hand, is not that dramatic. However, it can cause you to lose equal amounts of your wallet – or more – but slowly, almost silently, over time. We may not even realize this is happening.

While inflation averaged 2.1% Over the past 20 years, the expected rate of 4.4% this year shows that we cannot expect inflation to be asleep forever. So let’s see what would happen to your money if inflation averaged 3.5% for 20 years, for illustration purposes. Suppose you have $ 100,000 in the bank and earn little or no interest. With an inflation rate of 3.5%, $ 100,000 is only worth $ 50,000 in 20 years. It took 20 years for that money to deflate, so to speak. These are two decades where we may not have fully understood that our money was dwindling.

Many of us don’t like risk and are afraid of market downturns. So we deposit our money in the bank and wait, wait and wait. Since the 2008 financial crisis, well over 10 years – half of the 20-year inflationary period mentioned above – has already passed. With his passing, our money slowly lost its purchasing power. He just isn’t buying as much as he used to.

When the Fed talks about low or no inflation, while this may be true for the economy as a whole, it may not be the case for the average consumer – especially for us who have growing children at home. . When my wife and I feed a family of five and three good eaters, and I checkout at Trader Joe’s, no one can tell me the prices have stayed the same. My grocery bills are definitely higher than they were a few years ago! When I swipe that credit card it rings really loud. I’m so often amazed at how quickly I can cross the $ 100 mark at the grocery store, when I’ve only gone for a few items. Is not it?

Don’t ignore inflation: deal with it

Inflation is there, it is high and it is an enemy. It’s slow, but deliberate, and it eats our money. Its presence must be addressed and treated. Especially if a large portion of a person’s savings are in the bank and earn 0.5% or less. It is insulting to our money and dangerous to our economies. We recognize that everyone needs to have emergency money in the bank or in savings, say six months of gross pay. But having large amounts of our TSP in G or 401 (k) Fund and IRAs sitting in a money market can be potentially dangerous for our retirement. Big CD balances or massive savings accounts may just not serve you well.

For many, the conversation can be uncomfortable. The bank never seems to lose their money and they always know how much money they have. To some, it sounds like security. But this silent nemesis of our economies, inflation, is shrinking our money. A person should not be penalized for saving their money in the bank. But arguably since the financial crisis and the subsequent removal of interest rates by the Federal Reserve that followed once again due to Covid, it looks like a sanction. The financial crisis brought interest rates down years ago, and interest rates are still historically low, low, low. When people can refinance their home at 3% for a 30-year mortgage, you know the interest is meager. So many people have jumped on board and refinanced, and for good reason, can anyone blame them?

Even the TSP, the federal 401 (k) plan, recognizes this inflation problem. The stated objective of Fund G is to keep pace with inflation. It is invested in short-term US Treasury securities. Yet the most conservative of the FST’s lifecycle funds – the L Income Fund – still has 23% of its balance in stocks. A colleague of mine pointed out that the L Income fund has actually increased its exposure to equities from 2019 and is continuing. In 2018 and all previous years, there was only 20% of the L Income balance in equity funds, CS&I funds. In fact, this lifecycle target fund will continue to grow to reach 24% of equity funds and 6% of F bond funds over the course of a slow but sure decade. The managers of the fund actually increase the risk, steadily over time. By selecting Income Fund L, you are declaring that you are terribly conservative and that you want to earn income from your savings. Yet the Thrift Board still recognizes that you need to have some exposure to equity funds or your money will go down. There has to be a method of growth present, and they want to increase that exposure, and are doing it.

Get your money back at work

Your money in the bank could be compared to an adult child. They are 18, sitting on the couch, not helping with household chores, watching TV and playing video games, while their dirty laundry and dishes pile up. “Get up! Get to work!” you scream. Put your money to work. Get started. Get him off the couch.

Stop penalizing yourself with inflation. If you want to stop shrinking your retirement accounts, you should consider a comprehensive wealth management strategy that includes equity funds or ETFs, and at the TSP level that includes at least Fund C and Fund S. For big savings, there may be low risk alternatives. And their goal should simply be to accelerate inflation. While you can forgo a majority of cash, you can achieve growth that could accelerate or even exceed inflation. They may even be more tax advantaged than this low interest CD and, to add insult to injury, 1099 interest income issued at the end of the year.

I would suggest finding an advisor who is both a retirement planner and a trustee. Do your due diligence, then formulate a plan, get it in writing, and stick to the “plan”.

Founder, CD Financial

Charles Dzama is the founder of CD Financial ( He has passed the Series 65 Credentials exam and holds life insurance licenses in California, Colorado, Nevada, Washington, Florida, Pennsylvania and Missouri. Charles is registered as a representative of the investment advisers.


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