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  • Writer's pictureBridget Sullivan Mermel CFP(R) CPA

Inflation Anxiety: Three ways your financial plan can help

Updated: Aug 7, 2021

We’re facing what might be an inflationary people and many people are worried about it. We talk about three ways your financial plan can help protect you.

First we talk about how buying stocks in the form of mutual funds and ETFs actually protects against inflation.

Next, John explains how a 30 year fixed mortgage is a hedge against inflation. Jargon alert—hedge in this context mean that it protects you against inflation.

Finally, Bridget talks about how Social Security is indexed for inflation.

While inflation is a real concern and it can be difficult to visualize the numbers in the future, with the right way to think about it, inflation is something you can plan for rather than worry about.


John: Inflation is as high as it's been in years. It's all over the news, and what to do about it? That's what we're going to talk about today on this episode of Friends Talk Financial Planning. Hi, I'm John Scherer, and I run a fee-only financial planning practice in Middleton, Wisconsin.

Bridget: And I'm Bridget Sullivan Mermel, and I've got a fee-only financial planning practice in Chicago, Illinois. John, a lot of people are worried about inflation. And so obviously, inflation is happening now, and people see prices of individual things and are concerned about it. So what do you tell people about inflation?

John: Yeah. That's a great question. It's kind of interesting. We haven't had inflation in a real sense in a long time, right? And then after things were shut down last year, now we're seeing this pop and it's like “oh, what do we do about this?”

Bridget: Right.

John: And, you know, it does come back to some, there are some fundamentals that make sense. And the one big thing that I tell people is the best place to help offset or prepare yourself for inflation from an investment standpoint is having money in stocks, which is basically like buying companies, buying shares of companies, because as prices go up, a cup of supplies, of materials, of labor, companies are flexible and can raise their prices to keep up with that. So it's a very sensitive way to…they're very sensitive to increases in pricing and can adjust quickly. So it's as simple as it sounds, buying stocks inside of mutual funds and having a good allocation to that. That's one of the best things we can do to help offset the impact of potential inflation.

Bridget: So you're saying that some of the return that people get on investments from stocks is actually from inflation?

John: I don't know, that's a good question, I don't know if I would put it exactly that way, but when prices go up, right? If it costs more for a fast-food restaurant to buy hamburger because of inflationary prices, then they're going to raise the price of the hamburgers they sell to us, and they have the ability to keep their profit margins. Even so, I'm not sure that inflation is necessarily a driver of that, but it can be built in and can be adjusted to quickly. Whereas think about banks when they loan money out for CDs. If you have a five-year CD, they don't have as much flexibility to make changes and to react to that as a business does.

Bridget: Right. So what else do you tell people? So that's an interesting, interesting perspective on how stocks actually protect you against inflation. What else do you tell people, it seems like there are some other things, too.

John: Having stocks and then you get 401ks in your IRAs and things, one of the other really big factors that can help you offset inflation is having a fixed mortgage on your house to the extent you plan to live there for a long time. Current rates, I was just checking for a client this week, around our area are still at 3% or so on a 30-year fixed mortgage. And if you think about that, whatever the actual dollars that you're spending, if it's 1,000 dollars a month or 2,000 dollars a month on your mortgage, what are you going to be paying in 10 years, 1,000 dollars a month. What about in 20 years? What about in 30 years?

And if we have a higher inflation, what's the price of gas going to be in 10 years and the price of bread and fill in the price of those hamburgers, right? That's going to go up, and yet your mortgage stays the same. So you're paying it off. 1,000 dollars you pay today in mortgage is much more of the 1,000 dollars you pay in 10 years is worth less, right? If there's inflation. So it's a great hedge against that way. We were talking a little bit before the show about, you know, we go back far enough that we can remember when checking accounts actually paid interest, right? 3% or 4%, and CDs paying 6-7-8%.

Bridget: I grew up doing stagflation. So there was a whole, like 17% money market accounts. I had one of those when I was a kid.

John: So if we really get big inflation, right, the price of everything goes up, and that's kind of scary. But then our savings accounts, right. If our checkbook pays 4%, and then going back to that mortgage idea, if our mortgage costs 3% and money sitting in the Bank is making four or 5 or 6%, that's a really great way to do that. So having a long term fixed mortgage, as weird as it sounds, that can be a really great hedge against inflation as you think about what to do about it.

Bridget: Right. And the last thing I talked to with clients is that usually when I'm running projections for people, I like to use today's dollars because I feel like people relate to that better. So that's what I'm using. But actually, Social Security, the amount that you get with that is indexed for inflation. So that should go up.

John: That's such a great point that as you're approaching retirement, right, or if you're in retirement, Jeez, I got the costs are going up. What do I do? Well, your Social Security, which for a lot of people, pays a big chunk of retirement expenses. That right there…so in retirement, you have some stocks in your portfolio, you have Social Security coming in, you've got some other big hedges with inflation, some other big ways to offset that. I just caught that, I used the word hedge, right. [laughter] it’s one of those things, exactly. But it's one of the tools that you have are already sort of built into a lot of people's portfolios. So definitely something to be aware of, pay attention to, and be prepared for, but not necessarily something to be scared of.

Bridget: Right.

John: If we circle back those three things, buying stocks, having stock inside of your investment portfolio and mutual funds. If you're in a house that you're going to live in a long time, having a fixed mortgage that lasts for 15 or 30 years. And then just remember those other things that keep up with inflation, like Social Security.

Bridget: Right, great. So that's a great place to wrap it up, John. I'm Bridget Sullivan Mermel, and I've got a fee-only financial planning practice in Chicago. And this is John Scherer, and he's got a practice in Middleton, Wisconsin. We're both proud members of ACP, which is the Association or the Alliance of Comprehensive Planners. There are planners all over the country that operate with similar philosophy that we have. And John, why don't you talk about subscribing?

John: Yeah, that's right. So if you want to find a financial planner that things holistically, check out And the most important action step is to make sure to subscribe; when you subscribe, that helps other people find this information and learn about real financial planning. So with that, until next time.

Bridget: Alright. Thanks John.

At Sullivan Mermel, Inc., we are fee-only financial planners located in Chicago, Illinois serving clients in Chicago and throughout the nation. We meet both in-person in our Chicago office and virtually through video conferencing and secure file transfer.

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