"To be happy in this world you have to ignore some things." -- Alan Drew, "Shadow Man"

Wednesday, February 24, 2021

Remember Inflation?

     B came home the other day and said to me, "Gas prices are way up again. I paid over $3 a gallon!"

     We've gotten used to a low gasoline prices for the past year, ever since they plummeted due to the pandemic. But I checked. B is right. Gas prices have gone up -- by 15% in the last month alone. And today they are 3% higher than this time last year.

     Then we got a notice from our town. We were told that due to Covid, which has caused town expenses to go up and revenues to go down, our town taxes are increasing 12% this year. 

     The school tax has edged up just 2%. But that's still higher than the general inflation rate of 1.4% as reported by the federal Bureau of Labor Statistics. And with all the pressures that schools are under, I wouldn't be surprised if 2021 brings a much larger increase.

     Fortunately, our Social Security benefit is adjusted for inflation, at least by some measures. We got a 1.3% increase for 2021. But some of that extra money got stripped away by a 2.7% increase in Medicare premiums.

     Food prices are up. I read that chicken prices are 20% higher than last year. Meanwhile, the price of plastic is 8% higher, raising the cost of virtually every packaged good we buy.

     And I hope you don't want to buy a house. According to the most recent Case-Shiller report the price of the average home in the U. S. is up by 10.4%  from Dec. 2019 to Dec. 2020.

     Inflation has been low for a number of years. It is possible we've been lulled into a false sense of complacency?

     Inflation can have a big impact on retirees, since many of us live on fixed incomes. And even though we no longer have to feed a family or save for a child's high-priced college education, we still have to cover food, housing and medical bills. As an example, if the inflation rate goes to 3% and stays there, our costs will go up by 16% over five years and 34.5% over ten. So ten years from now that $3 gallon of gas will set us back a little over $4, and everything else we buy will cost a third more.

     Of course, you might think . . . ten years from now, who cares? But assuming Covid doesn't kill us, a lot of us will be around not just for another ten years, but for 15 or 20. Today, the average 70-year-old  lives to age 85 -- and one in five of us will live past age 90. So we need to consider our financial lives well into the future.

     For example, you might want to check your pension. Many pensions are not adjusted for inflation, but some are. If you have a pension, it would be good to know if your payment is tied to inflation, so you can modify the rest of your life accordingly.

    You might also want to bring up the issue with your financial adviser, if you have one. In the meantime, you should know that if you have an annuity, or invest in bonds, the higher the inflation rate the more you lose out. On the other hand, stocks (or ETFs or mutual funds) in your 401K or IRA will generally go up along with inflation -- unless we hit a period of hyperinflation like we did in the 1970s. Commodities like gold -- and yes, evil oil -- tend to outperform during inflationary times. Maybe bitcoin, too. I don't know. I wouldn't know what to do with a bitcoin.

     Real estate rises along with inflation, so owning your own home is a good hedge against inflation. (See the 10.4% increase in home values cited above.) Rental property also pays off during inflationary periods since you can usually raise the rent. But remember, when you're a landlord you're not truly retired. Managing real estate takes time and attention, and not everyone thinks it's worth the trouble.

      You can always fight inflation by downsizing. You can sell off a second car, or move to a community with a lower cost of living. Or you can decide not to travel. We're now looking at a rental place for next winter in South Carolina -- the same place we've rented twice before. The quoted price is $1,500 a week -- which is 5% more than last year's price (when we didn't go) and 12% (gulp!) higher than what we paid when we were there in 2019.

     Or you could always get a job. Unlike pensions, wages and salaries often increase with inflation and so employees are carried along on the inflation ride. But I don't know about you. I'm retired. I don't want to have to go back to work just to buy chicken or pay the town tax.

     However, we'll have to see about that vacation. I'd hate not to be able to go on vacation.


ApacheDug said...

I actually started a blog about this--in January my rent increased $20.00, my cable/home/internet $11.00 and my health insurance premium went from 144.00 to 181.00. It doesn't sound like a lot, but together it adds up to an additional $800 a year. No pension or annuity for me, I'm living solely off investments until I can supplement them with social security in 2 years. I tell myself I'll be fine, but everytime my local supermarket puts up a Help Wanted sign, it's almost ALWAYS filled by a senior now. Unhappy looking senior men in Produce or Meats, and senior women at the checkouts. I sure pray that isn't my future, I worked in a supermarket in the 1970s and have no wish to revisit that experience!

Barb said...

Lol. Also getting ready to push the button on this similar topic, you are a trendsetter Tom. Seriously though vacations are necessities life. The social security goes up but the Medicare goes higher and so on. It's a circle it seems to me.

Arkansas Patti said...

Sometimes my only desire is to tread water and not go under. Living on SS and a small pension. One good thing about these lockdowns is that I am not spending much on groceries--no impulse buying-- and I can't go anywhere so even at a higher price, my gas bill is much lower.

Olga said...

I have noticed prices going up but since I don't go out for meals or entertainment or much of anything else except grocery shopping and the occasional medical appointment I am not spending as I usually might. I have upped charitable donations to my favored causes.

Tom said...

This seems to be a common refrain: Due to Covid, people are spending less ... for now. I know it's true for us. But who knows what it will be like six months or a year from now. Olga, good for you for upping charitable donations. A lot of us otherwise-comfortable retirees are doing the same.

DJan said...

Me too, I was able to give much more than I usually do during the election season. But now everybody has their hands out, wanting more! I am doing okay, we are living on SS and an annuity.

Cindi said...

Inflation must be on everybody's mind. You do know, however, that it is going to get much worse, right? As the government keeps printing money, inflation rises. Both sides of the line are screaming! I can only imagine what's to become of all of us when the $1.9trillion dollar stimulus bill goes in to effect.
Here's my two cents:

Sue said...

Yeah, the price of groceries is insane. Glad i don't much care for meat.

Celia said...

Grocery prices are nuts. I had them delivered for awhile because I'm old and you know "underlying conditions" but OMG is that expensive. I've had my 2 shots so I'm back in the grocery shopping business for myself. Still I have saved $ too. No eating out, no shopping. It's been great for my budget but a heckuva way to save some$$.

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