Trends That Will Affect Seniors Retirement - Inflation
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By Stan Spector
I want to introduce you to some of the trends that are currently happening that will change the traditional picture of seniors retirement from what you picture it will be today.
Price inflation (CPI) is what we typically think of when we think of inflation. It has a tremendous affect on how we calculate retirement. We are starting to see inflation pressures from world economics, other countries’ population growth in their middle class (increasing demand for consumer products) and our behavior. Other countries like China and India are developing to a point where more of their population can afford the consumer products and the fuel to power them. Since the raw materials and fuel are in limited supply, higher demand will cause their prices to rise.
But all inflation is not the same. The inflation numbers you hear about are an “average household’s” mix of things they buy and the increases that these items will incur. As a retiree, your spending habits may and should be a lot different from the average household.
A few examples of price inflation for items as of the writing of this paper are:
Gasoline has gone up about 35% over the last few years. For those unfortunate commuters in the big cities who drive 1 ˝ hour each way to work, that must be a major burden. But I drive about 7000 miles a year with my high mileage car, so the burden isn’t equal here. Most retirees drive significantly fewer miles that they did when they were working.
House costs have gone up significantly over the last few decades but in the last 18 months house prices have gone down significantly. So we went through a period of high inflation for the housing portion of the budget for the “average household” but now house inflation is going down just as we see a pickup in the gasoline inflation. But retirees, frequently live in houses where they have paid off their mortgage loans so are not as impacted by changes in house prices as a young household unless the want to take the profit from their house to relocate.
Electronics prices have been reduced over the last decade but everyone wanting bigger and better electronic products has offset this deflation trend. Ten years ago, I bought a moderately priced 27” TV because I didn’t want to spend $2000 or more on a big screen TV. Now the large screen HD TVs have really come down in price but they are still a lot more than the 27” TV I was happy with10 years ago.
Similarly, the cost of simple telephone service, including long distance, has gone down drastically. But 10 years ago, I paid about $50/month for the one line we had in our house and the long distance bill we had for calling our out-of-town family members. We were very happy with our communication value. Now I can get a line with unlimited long distance for under $35 and a lot under it if I wish to use certain off-brand or phone service over high-speed internet. But today, my wife and I have 2 phone lines to the home, 2 cell phones with many of the extra priced features and high speed Internet access. Basic phone service costs have gone down while we are spending 5 times as much on our total communications bill.
Food costs have suddenly taken a sharp turn upward and this food inflation will probably stay high due to the high oil usage in fertilizing the crops, harvesting the crops and transporting them to us. This will also be aggravated by food chain poisonings, which will eliminate some of the low cost producing countries from our consideration.
Medical costs are skyrocketing, especially for retiree healthcare. Part of it is due to increases in the prices of the labor and services/products that we have long used. Part of it is due to new advances and procedures that can be done to help you live longer and better. Whatever the reason, I expect medical costs to continue to go up at twice the rate of general inflation. This directly impacts the cost of medical insurance. This is a larger portion of a retiree’s expenses than the “average household”.
I mention these different parts of the overall price inflation picture to show you that some areas are going up while others are going down. Some of the areas will impact seniors retirement less than the “average household” and some will impact more.
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