Saturday, May 5, 2018

Do Retirees Have to Worry About Inflation?


     After reading about my worst investment mistakes, I wouldn't blame you if you took any financial advice I can offer with a grain of salt. But again, in my defense, I offer up my own bone-headed mistakes in an effort to help others avoid bone-headed mistakes of their own.

     So here is an article I wrote for the U. S. News Retirement website that was also picked up by Yahoo Finance, as fair warning to retirees who might be worried -- or perhaps should be worried -- about the effects of inflation on their retirement nest egg.

     I don't know if you've noticed inflation creeping back into your grocery store or your monthly household bills. But since I wrote this couple of weeks ago, I ran across another sign of inflation, one that really hit me in the gut. The price of a medium-size vanilla cone, with sprinkles, at our local ice-cream stand has gone up 11.1 percent -- from $4.50 last year to $5.00 this year . . . 


Should Retirees Worry About Inflation?

by Tom Sightings

In January the Pennsylvania Turnpike lifted its toll by 6 percent – it will now cost $47.55 to cross the state. Amazon announced an 18 percent increase in Prime membership, from $132 to $156 a year. Average gasoline prices are up a solid 10 percent from this time last year, going from $2.386 to $2.631.

While it’s true that inflation has been low for a number of years, is it possible we’ve been lulled into a sense of complacency? In the 12 months through March, the Consumer Price Index increased 2.4 percent, the largest gain in a year. And Producer prices, often considered a gauge of future inflation, gained 3.0 percent for the 12 months ended in March.

There’s no reason to panic. Prices for some items, such as clothes and telecommunications, have actually gone down a little bit. And in March the CPI dipped, by 0.1 percent, its first stall since last spring. But experts now believe, especially with a tightening labor market and increasing U. S. debt, that inflation is no longer cooling down, but is instead warming up.

So do retirees have to worry about inflation? We no longer have to feed a family, or save for our kids’ high-priced college education. But we still do have to eat, and cover our housing costs and pay medical bills not covered by insurance. And even at a rate of 3 percent, costs increase by 16 percent over five years, and 34.5 percent over ten. Considering that people retiring today can expect to live another 20 years – and one in five of us will live past age 90 – we need to consider our financial lives well out into the future.

So even if you can afford your lifestyle today, are you prepared if prices start to increase. Remember the 1970s? Will Social Security keep up? Will your investments produce enough income?

For the rest of the article, and suggestions on how to protect yourself, go over to "7 Ways to Cope with Inflation in Retirement" at U. S. News On Retirement, or else Yahoo! Finance.

And may you . . . live long and prosper.

15 comments:

DUTA said...

Prices are indeed going up, slowly but steadily. And yet, retirees should worry about their health, less about the money. Keep away from doctors and meds (which means few medical expenses). Eat healthy (give up the steak, fat cheeses,wines; eat more veggies and fruit which cost cheaper) . As for the future, I'm not sure the world is got one. So why worry about 20 years from now?

Barbara said...

Like the poor, Boomers living on a fixed income feel all of those small increases that add up to a bigger chunk of the retirement income pie. The cost of food, gas, and drugs are required expenditures in the Boomers' budget so little increases can make a big difference. Good article.

Jono said...

I just hope it doesn't get to be a choice between eating canned cat food and dry cat food. Of course inflation is a concern. Right up there with health and safety in many ways. Good reminder.

Anonymous said...

We live in Washington state gasoline prices are rising like a river..we don't go many places and we love to go to the Washington coast..so as not enjoy seeing dear friends we carpool to the coast with another couple in a most fuel efficient car..Food costs are soaring too..we are noticing taxes on schools rising but not much one has to pay for public education or what will kids do for education, few people can afford private education and college is necessary to have a decent job..plus just four years a bs doesn't cut it much here..It is always something I say..I say enjoy oneself and don't worry..ciao!!!!!!!!!!!!!!!!!

Dick Klade said...

Good stuff here. Your U.S. News article omitted an 8th way to cope, and an important one. Pay off debts before you retire if you can, or set a schedule to eliminate them in a reasonable time frame after you enter your period of productive unemployment.

Still the Lucky Few said...

We have just experienced a rise in our condo fees, and are noticing increases in food every time we shop (price of avocados!). So yes, it is a concern. But I don't count on investment returns improving, and am certain we will not see an increase in our pensions. The only alternative is to spend less...as dreary as that sounds!

Sue Loncaric said...

It is a similar issue here in Australia, Tom. Thanks for highlighting the issue.

Rebecca Olkowski said...

When I was reading your gas prices I had to gasp. Our prices are a least a dollar more here in California. It's kind of scary.

Anonymous said...

The fastest rising inflation has to be city, state, and Federal taxes, tolls, and fees. As more government entities spend more and more....and they sink further into debt, they have no choice but to continue to raise more money. Most worrisome would be the national debt that plows more printed dollars into a Country that has no plan to control it. Continuing to print more USDs, make other USDs worth less and less. We are going to see “means testing” for Social Security, an increase in the Federal gas tax, more interest in taxing internet sales, and higher fees for Federal services (e.g. National Park Service senior pass went from $10 to $80 & passport fees just went up). They have no choice but to raise taxes and raise them quickly over the next 5-10 years.

Anonymous said...

We are on a fixed income but have quite a bit in savings. If necessary, I could always rent out our guest room for extra income.

Tom Sightings said...

Rebecca -- That average gas price is from a few weeks ago. The current average for a gallon of regular is already up to $2.81. And that's nationwide (including Texas!). Where I am in PA it's about $3.05. Even in NJ -- which is famous for The Sopranos and its low gas prices -- the price is about $2.90 now. But California? Well, everything is more expensive in California. Anon.: I can't argue with you.

Pia said...

Amazon is going up from $99 to $119, and for some reason my prime membership says that next April I will be charged $99–maybe because I order constantly!

I live in a low tax, “low cost” state—South Carolina. But food is the same price as everywhere else and I like to shop at ‘the good grocery store” Publix which is pricier but the pluses outweigh the negatives—at least for now. I can always change stores (ha!)
Being from Manhattan and originally Long Island I am used to the “best” and while I thought about money a lot never thought that I would buy a house that might be worth less than what I paid—and I put a considerable amount of money into it.

I’m not sure that buying a house at 58 was the most prudent thing to do. But when you live in Manhattan your entire adult life you long for space and outdoor areas that are yours. That said I bought the house for many reasons including one bedroom on the first floor and two upstairs so I could easily have a roommmate.

But I might sell and move to a part of the country where I have more in common with the people. Great friends here but I can only discuss certain things with a few. Unfortunately most “blue” areas are pricey.

I can and will get rid of the cable package that I’m always getting down in price “for a year” A Spectrum year lasts 4 months in normal time.

And I can afford to delay Social Security until 70 which is a big help. It’s nothing I’ve ever counted on, so it will be found money. Because I’m from Manhattan and am a woman my health insurance cost an arm and a leg (literally). I love Medicare and the best supp I could find. I think people don’t realize what a great thing Medicare can be—as long as you get the supp that covers the copay and much else. I pay more than most for Plan D not because I need it but because I learned last year you never know what will happen—and that is what insurance is supposed to be for. I know this is all unaffordable for many—and hope that it remains affordable for me.

I always had renters then coop insurance. Every year my premium would go down. Now I have 3 kinds of home owner insurance as I live 5 blocks from the insurance. I resent paying so much for something I’ve never used in my life—wish the premium would go down or it would kick in at less than 2% but....My single biggest expenses are home insurance—cancels out the low property tax—and “you never know what’s going to go wrong” home maintenance expenses. I see home stuff going up—more the cost of labor. But hell if I can replace wood in a wood frame house—take out a wood deck and put in pavers. I tell myself the expense is worth it because I enjoy it but really I hope my home value appreciates.

Weekend-Windup said...

All prices have gone up. It is difficult for the retired people to live. They need to take care of their health by eating health vegetables and fruits in order to avoid giving money to doctors and medicine and save them for their future use...

Terri said...

We haven't retired yet, but I am working on getting our bills paid off. Our grocery bill is atrocious for just two people, but if you eat healthy (lots of vegetables and salads) your bill is going to be more than for junk food. My main worry is insurance.

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