Thursday, December 23, 2010

High Price of the Future

     I might live another 30 years. I hope to live that long anyway. My blood pressure is good; my cholesterol floats around below 200; I gave up smoking a long time ago.

     Of course, I also gave up working a few years ago, so I live on a "fixed income," supplemented by a little freelance work and a few consulting jobs. I can afford my lifestyle now. But I wonder, what happens in 10 or 20 or 30 years, when I don't have any supplemental income, and prices are a lot higher than they are now. Will Social Security keep up? Will my investments produce enough income?

     I got thinking about this because yesterday I heard on my car radio that in 1980 a Corvette cost around $12,000. Today it's priced at about $60,000. The price of the car has gone up 5 times. I recalled my own experience. When I bought my first new car, a Saab in 1979,  it cost $6200. Today, a Saab sets you back a little over $30,000. Again, it's increased by a factor of 5.

     Earlier this year, I bought a new Acura TSX for $28k and change. So at that rate, in 30 years that new car is going to cost over $140,000!

     How about a house? The house I live in is worth, according to, roughly $600k, slightly above average for my area of New York. It was built at the end of the '70s when it sold for $60,000-and-something. That's a nine or ten-fold increase, even accounting for the recent slump in real estate. At that rate, in 30 years the house will be worth $6 million!

     Of course in 30 years, if I'm alive at all, I'll be too old and decrepit to drive, and the only people interested in the value of my house will be my heirs. But I'll still want to eat or mail some Christmas cards or help my grandchildren pay for college. And I'll surely be interested in the price of medical care. So if prices continue for the next 30 years the way they have in the past 30 years (and I'm not predicting they are . . . could be better, could be worse) this is what reality will look like:

Item                   Cost in:         1980                2010                 2040     

1 gal. milk                            $  1.60              $  3.29              $   6.77
box of cornflakes                 $    .69              $  2.99              $ 14.29

book of 20 stamps               $  3.00              $  8.80             $  25.80
15 gal. tank of gas                $17.85              $47.85             $171.00

1 yr. priv. college tuition $5,600.00       $35,600.00      $226,300.00

5 days in the hospital          $635.00       $25,000.00     $984,000.00

Consumer goods index       $100.00           $282.00              $795.00
Average mo. SS check        $320.00        $1,170.00           $4,300.00
S&P stock index                    115                  1,255                  13,700
       These figures, by necessity, are estimates. Some of them are almost unbelievable. Nobody thinks, given the pressures on Social Security, that our checks will rise to over $4000 a month. And it really is hard to believe that a routine hospital stay will cost a million dollars. But then, who in 1980 would have dreamed that a year in college would cost $35,600 . . . plus room and board!

     I don't mean to scare you. But forewarned is forearmed. And, hey, look at the bright side -- at least we'll be able to eat a decent breakfast!


Dick Klade said...

I'm scared. Two years ago, my ultra-safe investments were drawing 5 percent interest. Now it is 2.5. A huge turnaround will be needed to catch up, and it doesn't look like that is going to happen.

Sightingsat60 said...

I know! And you're not doing bad at 2.5%! That's what prompted "Mr. Bernanke, Raise Our Interest Rates!" No one wants to admit that the banks, the foreclosed properties and the whole sorry economy are being bailed out on the backs of seniors who have saved for retirement. Our income has fallen like a stone -- and to add insult to injury Social Security has been frozen two years in a row. said...

The problem with the CPI which is used to index Social Security and other annuities is that it relfects the consumption of a family of four in about 1972. Although it may have been updated since I retired and kept track of such things, it never did reflect the expenses of a family of one or a single person age 65 or older. The distribution of expenses for an older person has a much higher proportion dedicated to medican care, for example. Put simply, the lifestyles of seniors are different from those under age 65. What does it matter if my house has appreciated five-fold since we purchased in in 1982? As for cars, we drive three older cars, manufactured in the late 1980s or 1990s. We do not plan to buy a new car ever again. College tuition? It might matter to the young-old like me, who thought they would take a few courses for personal enrichment. If the tuitions keep rising, even my grandchildren will find it difficult to keep up.

Like most seniors, we look for substitutions too.

Kay Dennison said...

I drive a 2000 Pontiac Sunfire. If Miss Ruby dies, I don't know what I'll do. As it is, she going to the car doctor soon for repairs which I can ill afford. I spent most of my life as a housewife and mom and my ex finagled things so I got no alimony after 28 years of marriage. I was forced into retirement because of the economy so I live on what many would call 'chump change'. I really don't care because I'm pretty good at taking care of myself but big expenses are tough. Frankly, if they try to mess with Social Security, I think we elders need to hit the streets!!!!!! We did it 40 years ago and we can do it know!!!!