Hurricanes are scary, but they're also infrequent; a lot of the risks that come with them are just not that big a deal if you use a little common sense.

We used to live on the beach in Pensacola, Florida. When a hurricane came into the Gulf of Mexico, we'd check the government's National Hurricane Center website and look at computer models projecting the probability – with some real accuracy – that our home would be a target.

On two occasions we piled the pets and a few valuables into the van and headed to Atlanta for 4-5 days, until the threat was over. The last time, we had to park 50 yards from our home when we returned, and wade back to our house. Luckily we built it high enough to keep the rising tide from flooding the first floor. Unfortunately our rural mailbox was full of water and soggy mail. Not too long after that, we decided our “dream home” wasn't quite what we'd thought it would be, and we moved on.

There's More to the Picture than Actuarial Risk

“Risk” isn't such a simple term to define, and the probability figures some actuary puts in a chart are not the whole picture.

Assessing risk is very personal – there's more to it than the probability of some bad event occurring. You should also consider: how much advance warning you have to prepare; what's the potential catastrophe; how would the worst-case scenario affect you and your family; and – perhaps more importantly – what would it take to recover physically, financially, and emotionally?

As you move along the path of life, the issue of recovery becomes quite different.

Being totally wiped out and penniless at age 25 is much different than being in the same situation at age 45, or even age 75.

When you move into retirement mode, weather-related risks seem manageable. You actually listen to the tornado warnings, hurricane warnings, and maybe even the less-accurate announcements about seismic activity, and take reasonable precautions to protect yourself. Our government spends your tax dollars playing a modern-day Paul Revere, always shouting about some catastrophe on the horizon.

The National Weather Service Doesn't Track Inflation

But what happens when there is no warning?

I imagine many folks who lost everything in the 1929 stock-market crash would have described it just like that.  What if the catastrophe is of the sort that occurs so rarely that no one can clearly remember the last time it happened or how folks dealt with it? Let me give you an example.

A couple of years ago, if you'd asked me to define the word “hyperinflation,” I would likely have said it was really bad inflation – probably more than 10% – and it affects your buying power. I can recall my grandparents discussing the Great Depression, including how my stepfather couldn't find a job and made his money playing softball until he joined the Army. I don't recall inflation, much less hyperinflation, ever being part of the conversation.

In the fall of 2011, I went to a Casey Research conference in Phoenix. There were three gentlemen – one from Austria, one from Argentina, and another from Zimbabwe – there to speak about hyperinflation. Each had lived through it in his country, and they spoke about inflation rates quantified in the thousands of percent. In all three cases inflation seemed to be going along at a reasonable level, and then it shot straight up in the air. Inflation rates zoomed from 5-10% to 2,000% or more, almost without warning.

All three indicated that seniors and savers were virtually wiped out. Their life savings, denominated in the currency of their respective countries, became worthless overnight. Many became penniless, homeless, and hungry… certainly not a pretty picture.

The gentleman from Austria put up a chart that read: “On average prices doubled every 1.4 days.”

At the time, a friend of mine had a $100,000 CD that had matured, and she was considering renewing it for another five years at a very low interest rate. She and I calculated that if her $100,000 CD was hit with that type of hyperinflation, it would take less than 29 days for its buying power to drop below $1.00.

The thought of losing your life savings when you're retired, or even just close to retirement age, is frightening.

I decided to apply my personal checklist for assessing risk to hyperinflation. First, what's the probability hyperinflation will hit us at home? If you read a few newsletters, you probably already know that our government is printing trillions of dollars at an unprecedented rate. I recently read in the Wall Street Journal that 61% of our Treasury bonds auctioned off were bought by the Federal Reserve in 2011.

Our government is spending lots of money it doesn't have. Recklessly printing money on a printing press is supposed to cause both inflation and hyperinflation, isn't it?

But can anyone assess the true probability of hyperinflation? As an investor who subscribes to many newsletters, I've read of experts who insist there's a 100% probability – not a matter of “if,” just a matter of “when” – and others who think we'll weather the storm with little damage.

Okay, will you receive enough warning about hyperinflation to leave you time to prepare?

In Argentina, the government publishes “official” inflation figures. I understand it recently passed a law to penalize anyone who publishes statistical data in conflict with the “official” numbers.

Here in the US, our “official” numbers are published by the Bureau of Labor Statistics (BLS) and then repeated by almost every news outlet in America and many beyond. John Williams, who runs the website Shadow Government Statistics, sees things differently. He points out the fact that the government has changed its method of calculation many times over the years, so the official inflation rate is likely less factual than you've been told to think. Every reader should form his own conclusions, but I urge you to look over his website.

The government has a huge financial incentive to underreport inflation. The figures it publishes affects interest rates on many government securities and the amount it pays to government retirees. Plus, a higher inflation rate increases what's paid to Social Security recipients.

The National Weather Service may give as much advance warning as possible about potential weather disasters, but the BLS isn't so diligent – nor accurate – when it comes to catastrophic economic disasters.

Playing Semi-Pro Ball Is No Longer an Option

My final questions on my risk checklist all tie together. What's the worst-case scenario for hyperinflation, and how would it affect you and your family? What would it take to recover physically, financially, and emotionally?

If an economic catastrophe had hit when I was in my 20s, much like my stepfather, I probably would have played semi-pro softball and found some other way to earn some money. He survived, and I would have too. On the other hand, as a senior citizen, hyperinflation would paint a much more challenging picture.

I don't want to lose everything and have to start over. I started over financially in my late 40s, and it was tough enough then, even though I had marketable skills and was in my peak earning years.

From a risk-analysis standpoint, the real key for retirees and those closing in on retirement is to be as prepared as possible in case hyperinflation becomes a reality here at home. While the probability of hyperinflation may be up for debate, the adverse consequences for baby boomers and retirees if it hits are terrifying. Like many in Argentina, Austria, and Zimbabwe, being totally wiped out is a real possibility.

With every investment I make these days, I factor in the potential for hyperinflation.

While no one can accurately predict the probability or timing of hyperinflation, the terrible consequences it will have on many seniors and savers are certain.

On the Lighter Side

A young man sent me a note a few years ago to thank me for a discussion we'd had. He wrote:

The difference between school and life: In school you are taught a lesson and then given a test. In life you are given a test that teaches you a lesson.


Hurricane Isaac thumped the Florida Keys pretty hard. That's one of our favorite places – our SSR group hosts its November rally there. Hopefully business will be back to normal by then.


And finally, apparently my remarks about the perks of reaching 70 hit home for a few readers. A friend suggested another: “You no longer look at speed limits as a challenge.”

Until next week…