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If You Want A Retirement Income You Can’t Outlive, Choose Recession Over Inflation Every Time

Inflation is in all the headlines these days and you’ve heard me say that if I had a choice between inflation and recession, I would choose recession every day and twice on Sunday.

I am a retirement income planner.
Inflation is the dominant risk to our retirement incomes.
Equities are the best available tools to fight inflation.

Most investors get this wrong – they mistakenly believe that market risk is the issue they have to overcome. And, in the attempt to manage for market risk, they worry about the wrong things. Recession is one of those things that, while potentially painful in the short run, resolves itself to become a minor issue in the long run.

We have to think time horizon. Markets are volatile in the short run, but that volatility drastically declines as your review period lengthens. When you look at rolling 30-year market returns (S&P 500) since 1926, they fall within a range of +8% to +15%. Yes, you read that right, the low end of the 30-year return spectrum is 8%. The longer you commit to holding your equities, the higher the probability you will experience positive outcomes.

From 1926 through 2022 if you held your equities (using the S&P 500 as our model) for a:
1-year period, you experienced a positive outcome over 75% of the time;
5-year period, it was over 88% of the time;
10-year period, it was just under 95% of the time; and at
15 years, you had a positive outcome 99.7% of the time.

The longer period you commit to holding your diversified equity portfolio, the higher the probability you have a positive outcome.

The problem with equities is the short-term volatility. The issue is predictable reactions to the short-term swings and headlines. If you are scared out of the market, you don’t reap the long-term benefits. But, it is the fear, not the market that is the issue.

Inflation is just the opposite. We rarely feel the pain of inflation in the short run. It is a bit more acute today because inflation is higher than it has been in a long time and the headlines remind us of this fact every minute.

Long-term, inflation is THE retirement income killer. At the long-term average inflation rate of 3%, you have to MORE THAN DOUBLE your income during your retirement years – just to keep up with rising costs. This is not a “nice-to-have;” this is a “must-have.”

Every year, year in and year out, you must have more income to buy the very same basket of goods. If your income does not increase, you can’t buy everything you purchased the prior year – this is the definition of a decline in lifestyle.

Over time market risk declines and inflation risk increases… this is why, as a long-term retirement income planner, I will choose recession over inflation every single time.

So should you.


I answered a few questions about inflation for MoneyGeek last week. If you are curious about how inflation can be good for consumers (think home ownership) or why the Fed (and the world) likes a little inflation better than high inflation or deflation you can click the link and see my answers.

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