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How can you create increasing income in retirement in a bond bear market? How critical is it to have a strategy to address that?

You know, interest rates are rising. We all see it in the short term and the more medium- and longer-term rates. Car loans are more expensive, mortgages are more expensive. The short-term rates are really going up. There’s now concerns about inflation. With interest rates having been so low, there’s no question in my mind that we’re on the front edge of a bear market in bonds. That’s because when interest rates go up, bond values go down. Therefore, it can be challenging to generate increasing income if you are depending upon traditional methods of retirement planning.

One of the two major sources of guaranteed income most people will have in retirement is Social Security. It’s been estimated that there will be a 3% Cost of Living Adjustment (COLA) in 2019, which would be the biggest annual hike since 2012. Now this year, the Cost of Living Adjustment was 2%. But that followed a 0.3% increase in 2017 and no increase in 2016. These numbers highlight increases in inflation.

Here’s the problem: since 2009, the average cost of living adjustment has been 1.2%. Yes, in the last two years, we’ve had greater increases, but most people haven’t seen that much of a difference on their net check. Once you are drawing Medicare after age 65, most people typically have their Medicare premiums deducted from their Social Security check (if they are already drawing it). The Medicare premium increases have been wiping out most of the increases in Social Security benefits.

If you are lucky enough to have a pension, many pensions have no cost of living adjustment. And even if they do, what is that cost of living adjustment going to look like in the future? Inflation is starting to rear its ugly head, and in the traditional sources we draw from for retirement income, we’re going to see little, if any, increases in our income.

That’s where having a financial plan comes in. We have to have a solution to provide increasing income that lasts longer than we do, and there’s a lot of ways to do that. I’ve talked previously about segmenting your money based on when you’ll need the money and that you simply have to have a strategy to produce increasing income in retirement.

Unfortunately, dependable, increasing income is probably not going to come from the traditional bond market. Beware traditional bonds! I’m not saying you shouldn’t have any traditional bonds in your retirement portfolio and mutual funds. But you have to be very, very careful because while bonds help us in the short term, in the long term, they’re likely to be a losing propositi