For Mark Roberts’ Use: We often warn our clients that, while they might not notice the effects of inflation from one year to the next, they will certainly notice a decrease in purchasing power over several decades. With lifespans reaching into the 80s and 90s these days, some of us could be spending 20 or 30 years in retirement. Inflation will have a large impact on those living on a fixed income!
Knowing this, you might keep an eye on the Consumer Price Index, and its estimates of annual inflation. For example, inflation was estimated at a moderate 2.1 percent in 2016. When you received this news early last year, you might have thought that number seemed “off” by a bit. Maybe you didn’t notice any inflation at all, or things even seemed slightly more affordable. Or, perhaps you were one of the unlucky ones, and it seemed as though inflation had driven up prices substantially higher than a mere 2 percent.
Different individuals seem to notice inflation from different perspectives, and for very good reason. The Consumer Price Index tracks the prices of 2,000 items, but we don’t all purchase the same things in the same amounts. Take a look at these measures from the 2016 statistics and you’ll see what we mean:
- Housing increased by 3.6 percent
- Healthcare increased by 4.1 percent
- Gasoline increased by 9.1 percent
- Education increased by 2.7 percent
- Communication dropped by 2.6 percent
- Used vehicles dropped by 3.5 percent
- Groceries dropped by 2 percent
- Airfares dropped by 4.7 percent
Theoretically, if you commute only two miles to work, rarely need a doctor’s care, and have already paid off your home, you probably wouldn’t have noticed inflation. On the other hand, a person whose rent increased, who suffered a major illness, or who travels frequently might feel as though inflation went through the roof!
Clearly, inflation can be a very personal matter. While the CPI will always compute an average inflation rate, your individual lifestyle and needs will greatly influence the inflation you feel personally. In particular, we should all plan on greater healthcare costs as we look toward retirement.
On that note, give us a call to review your retirement plan, especially if you aren’t sure how much inflation might impact you. We should take a closer look at your calculations, to help ensure that you’ve considered all possible scenarios.