- How to calculate inflation.
By the end of this video episode
you will understand
that the easiest way to calculate inflation
is by using the Rule of 72
both directions.
You'll understand what I mean by that in just a moment.
(inspirational music)
So, I'm Doug Andrew.
I've been a financial strategist
and a retirement planning specialist now
for north of 48 years.
And during that time period
I've helped thousands of Americans
prepare for a comfortable retirement
to not outlive their money.
What causes most Americans to outlive their money
is the negative impact of three big dangers,
taxes,
inflation,
and market volatility.
My favorite vehicle that eliminates those dangers
is a maximum funded indexed universal life insurance policy
that is structured correctly and funded properly
because it will earn average rates of return
of 7 to 10%, some years much higher than that,
but totally tax-free.
But when the market goes down, you don't lose.
You participate when the market goes up.
That's indexing.
It's totally tax -free
so it doesn't matter what Congress does to taxes,
you're immune from taxes going up affecting your retirement.
But what about inflation?
You are able to link your returns
to the things that inflate
and I talk about that on other educational videos
on this channel.
Now, in this particular episode
I'm going to talk about how to calculate
the negative impact of inflation
using simple math called the Rule of 72.
And I'm going to approach it from two different directions.
Let's start with the main way
that most people are taught the Rule of 72.
Most of the time people hear of this rule
and it helps you calculate
how long it will take you to double your money.
Okay?
Now this isn't designed for periodic, you know,
$100 a month or $500 a month savings accounts.
This is if you started out with a lump sum.
So let's say you started out with a lump sum of $125,000
and you wanted to know
how long it will take
for that 125,000 to double to 250,000,
and then 250,000 to double to 500,
and then 500,000 to double to a million.
And let's say that you think
you can earn a rate of return of 8%.
So if you could earn 8%
you divide eight into the number 72
and it will tell you
your money will double every nine years.
So in nine years, 125,000 is growing to $250,000.
In another nine years, 250 goes to a 1/2 a million.
In another nine years, it'll double to a million, okay?
Now, if you're at 9%, it doubles in eight years.
If you earn 5%, it will double every 14.4 years.
(Doug chuckling)
Do you have some money in a bank right now
earning less than 1%?
At 1% it'll take 72 years to double your money.
That's pretty pathetic.
But if you earn 10%...
Now I've actually netted 10%
after the cost of insurance on IUL for many, many years.
10 into 72 means my money doubles every 7.2 years.
Now ever since the emergence of universal life in 1980,
and then 17 years later, indexed universal life,
when interest rates started to come down,
I have averaged 9.62%.
If you divide 9.6, I'm just gonna round it down, into 72,
my money doubles every 7.5 years.
(mouse clicking) Yep.
I've had many clients who have experienced
their money doubling every 7.5 years.
A 1/2 a million they started with
doubled to a million in 7.5 years,
that million doubles to 2 million in another 7.5 years,
by the end of 15.
It doubles to 4 million at the end of 22.5 years.
By the end of 30 years, it's worth 8 million.
Yep.
We have clients with $8 million, tax-free,
and a portfolio of IULs
that now it's generating 600, 700, 800,000 a year,
8 to 10% payouts,
without depleting principle.
Okay.
I want this for you.
No matter how much money you may start with.
It's not what you begin with that counts,
it's what you end up with.
So let's go back to the Rule of 72
and see how you can use it with inflation, okay?
Now, the reciprocal of that equation is true.
When people would come to me and they would say,
oh,
I bought a piece of real estate for $100,000
and I sold it later and doubled my money.
I go,
so?
I'm not impressed until I know what?
How long
did you hold onto it?
And did you leverage or did you tie up all your money in it?
Okay?
Leverage is the third miracle of wealth accumulation,
the ability to own and control your assets
with very little or none of your money
tied up or at risk in the asset.
A lot of people just pay cash,
let's say, for a piece of real estate.
So, they bought it for 100,000 and they sold it for 200.
I'm not impressed until I find out what?
How long did you wait before you doubled your money?
If they go, oh, 10 years.
Well, I divide 10 years into the number 72
and that tells me their average return
was 7.2% interest compounded annually.
That's what they would've had to have earned on $100,000
to have it be worth 200,000 10 years later.
Now I'm not that impressed.
I'm going 7.2%,
a lot of real estate appreciates at that rate.
See, it's not impressive
when you understand how to use the Rule of 72.
So far so good?
So let's go back to calculating inflation.
So, if the government says the inflation rate is 5.8%,
like they did in 2021, (laughing)
that's not the real rate of inflation.
That's called the consumer price index,
which they changed twice back in the 1980s.
They actually do not compare the same basket of goods
to the identical basket of goods year to year.
It's like apples to oranges,
and they can actually compare the price
of a eight ounce filet mignon steak in 2021
to eight ounces of hamburger in 2022
because it's still red meat.
And they actually do that.
So, they did that because back in the '80s
they did not want to have to keep paying
social security recipients
raises
based upon the actual cost of living increase, the CPI.
So they changed the way they calculate inflation
and it's apples to oranges.
So, in 2021, when they came out and said,
oh, inflation has been a 20-year high.
The cost of living has gone up 5.8%.
We're gonna be heroes
and give you a 5.8% raise on your social security.
(bell dinging) Everybody's like,
well how come I can't buy the same gallons of gas
and loaves of bread I could have bought before
even though I got this 5.8% raise?
Because gasoline went up 50%, even 100%.
Used automobiles went up over 20%.
A lot of meats, all kinds of consumer goods
went up way more than 5.8%.
The actual rate of inflation is usually triple the CPI,
the consumer price index.
So if you hear what the rate of inflation is,
if inflation is 7.2,
the cost of living's gonna double every 10 years.
If they say inflation's 10%, it doubles 7.2 years.
It it's 12%, it's gonna double in six years.
It's actually been over 15.
15 into 72 means the cost of living
will double in 4.8 years.
Are you understanding this?
What does that mean?
If you could get by on 100,000 today,
in less than five years
you're gonna need 200,000
to buy the same gallons of gas and loaves of bread
that 100,000 buys today.
And in 10 years, it will double again.
You're gonna need 400,000
to buy the same gallons of gas and loaves of bread
that 100,000 buys today
if inflation stays at 15%.
Now some people say, well, that's impossible.
No.
That's where we're headed
'cause they keep printing money.
Now, let's go back to this reciprocal type of a equation.
What if all you hear is what the government tells you,
what they want you to hear,
inflation's 5.8, and you know better.
So, you simply measure.
So how much was gasoline
a year or two years ago?
How long did it take gas
to go from $1.50 a gallon to $3.00?
Or from $2.00 a gallon to $4.00 a gallon?
And you look at it and you go, (laughing)
a year and a 1/2, two years.
You divide two into 72.
Okay?
And that means inflation is 36% on gasoline.
If it doubled in one year, (laughing)
inflation was 72%.
If prescriptions, okay,
now cost double what they did three years ago,
three into 72 means the inflation rate on medicine is 24%.
So you take how long it took to double
the cost of something,
divide that many years into 72,
and it'll tell you the real inflation rate.
Is this scaring you?
Yeah, I'm just simplifying it.
You'll learn real fast
that what the government tells you the inflation rate is
is smoke and mirrors.
So by understanding how to calculate inflation
hopefully you will then ask the next question.
How can I outpace the inflation rate?
That's what I love to teach people,
is how to outpace inflation
by linking your returns on your money
to the things that inflate.
I've always earned a rate of return
greater than the inflation rate at any given time.
So check out my channel.
Learn how you can do that
so that inflation doesn't hurt you,
it actually helps you.
I don't like inflation anymore than you do,
but it doesn't hurt me, it helps me,
when you understand how to do that.
If this is arousing some curiosity,
here's your first step.
I want to gift you a free copy of my 11th best-selling book
called "The Laser Fund".
It's 300 pages.
It's actually two books in one.
This book is 200 pages, 14 chapters,
with all kinds of charts and graphs of how to diversify
and create the foundation for a tax-free retirement,
and link your returns to the things that inflate.
My favorite vehicle, IUL.
If you learn better by stories, you turn it over.
And you read this one,
100 pages, 12 chapters, with 62 actual client stories.
This is the right brain side.
This is the left brain.
If you wanna use your whole brain
I would recommend you read the whole book, okay?
But you simply go to laserfund.com.
L-A-S-E-R fund.com.
You contribute a nominal amount
towards the shipping and handling.
You have to have some skin in the game, come on.
And I'll pay for the book.
You don't have to pay $20 bucks.
I'll fire out a hard copy to you.
There's options there.
If you'd rather listen and learn or watch and learn,
there's an 18-hour MasterClass.
But check out some of our online webinars
that we do on a regular basis.
And if you wanna be directed to an advisor
who understands how to help you
implement these strategies correctly
then you can check out IUL Insiders
and we can point you to the advisors
that know how to help you eliminate the dangers
of taxes, inflation, and market volatility
for your brighter future.
(inspirational music)