If, like me, you purchase half and half for your coffee frequently in Grand Boulevard or Miramar or Santa Rosa Beach, you may be aware of how much the cost of this product escalates.  I know this can’t be true, but it seems that every time I buy half and half, the price has gone up by twenty cents or so.



When we think of retirement, and planning for it, we are foolish not to consider the specter of inflation. Constantly rising prices on repeatedly purchased goods is only the half of it, no pun intended. 



The flip side of the equation, of course, is that we must make our money grow at least as fast as inflation rises, and hopefully faster, so that we’re simultaneously keeping pace with rising prices and growing our portfolio. Health care premiums, home and car insurance rates, college tuition levels: these expenses never seem to decline. And regardless of the cost of food and fuel and utilities, these are staple items that we must purchase, regardless of the rising price tag.



While we’re still in our working years, we can at least enjoy the prospect of increased income through wage increases. And we can fight inflation with a larger income. After retirement, our income is frequently fixed so keeping pace with inflation becomes much more challenging. 



As we all know, CD’s are paying virtually nothing. And treasury securities, while a safe investment, are also low yielding and not likely to provide the return we need. So we’re forced to utilize the equity markets to make any kind of headway.



In our opinion, the best defense against inflation for a person with a significant portfolio is generating income through one’s investments. Getting paid from one’s portfolio is a virtual mantra at our firm, and we rarely purchase securities that do not pay a dividend.



For those in retirement, these dividends and coupon payments serve as a “replicated paycheck,” money streaming into one’s checking account monthly. Meanwhile, we endeavor to continue growing the principal in the accounts. But whether the market rises, slumps or moves sideways, if you are invested in dividend-payers, you still enjoy periodic, systematic income. 



Dividend-paying equities act much like bond coupon payments, except that they may provide better opportunities for growth along with their payout. We favor American companies with broad, global appeal, which have historically increased their dividend payouts to shareholders.  So when the cost of half and half goes up, your increased dividend helps you pay for it.  We believe dividend-paying stocks will be even more important in the years ahead, as millions of baby boomers retire and many with a nest egg less than what they hoped to have. 



A recent Wall Street Journal article by Lauren Weber entitled “Americans Rip Up Retirement Plans” addresses this issue.  “Nearly two-thirds of Americans between the ages of 45 and 60 say they plan to delay retirement,” says Weber, quoting an upcoming report from the Conference Board. Just two years ago, only 42 percent of those interviewed planned to delay retirement. “The increase (in the number of people putting off retirement) was driven by the financial losses, layoffs and income stagnation sustained during the last few years of recession and recovery, said Gad Levanon, director of macroeconomic research at the organization and a co-author of the report…”



The American work force, along with the population, is aging. 



“The labor force has been getting older for decades for reasons that range from longer life spans and better health to companies’ replacement of defined benefit pensions with higher-risk 401(k) plans,” says Weber. And according to the survey, a larger percentage of our aging labor force is going to keep working.  Weber suggests that despite recent upticks in the economy, many older Americans “now find that leaving the work force on their original timeline is no longer viable…”



Levanon counters that many folks will still retire when they thought they would. “Research shows that intentions don’t necessarily align with reality, and people often end up retiring as they had expected because of health reasons, job losses or simply a miscalculation of their own desires,” says Weber.



Margaret R. McDowell, a chartered financial consultant and accredited investment fiduciary, is the founder of Arbor Wealth Management, LLC, a fee-only registered investment advisory firm located near Sandestin. Call 850-608-6121 or visit www.arborwealth.net for more information. Arbor Wealth specializes in portfolio management for clients with $250,000 or more of investable assets.