Inflation’s silent impact on way of life

Doug Horn

Recently I received an “On This Day” report which provided information pertaining to events, people, and costs for &^$#@ years ago, my birthday. (Intentionally deleted due to the obscene size of this number.) Clearly this was not intended to remind me of those things I may have fond memories of, since events and friends from those very early days still elude me. But, I was shown how little certain goods cost when I was born.

While this is not scientific, I calculated the inflation rate of those items listed on the report such as milk, eggs, bread, gas, cars and homes. The annual inflation rate for each item ranged between 2.2 and 4.68 percent. No one item incurred the same inflation rate as the other and some items are still basically the same today as before. While others, like cars and homes, include significant improvements and benefits which also impact their inflation rates.

Even though the number of items reviewed was small, I believe it highlights a potential problem we all face, inflation. And while we often speak of inflation as a generic number, something everyone feels, it is very personal including the rate we each experience. No one person’s spending habits are just like their neighbor’s. Everyone actually has their own inflation rate. Those impacted by medical expenses and who are not covered by insurance will have an entirely different inflation rate than a retiree who happens to be in good health and reads books for their enjoyment.

Inflation is very real and presently many retirees are feeling the pinch of higher costs (inflation) and lower income due to low interest rates (deflation perhaps); their lifestyle is in the middle of this squeeze. Another way to look at this issue is to consider the percent or share a particular cost is of the annual budget. Even if costs are maintained, but income goes down, their share of the annual budget just went up having the same impact of increasing expenses.

Most retirees no longer retire from work and live two to four years and then are gone. Life expectancy and good health along with many other positive factors has provided decades for our retirees to enjoy. Provided of course, their income is sufficient to meet the rising costs of living each and every year of their retirement.

One way to combat inflation is through the selection of the items where the capital is spent. Choosing to read books rather than play golf will lower expenses and perhaps the personal inflation rate. The frequency of dining out, going to the movies, and the types and destination of vacations all play a part. Although, many of these define the quality of life, they impact the budget as well. There is another problem with this option though. There are certain costs we cannot avoid and have little choice in managing the impact such as medical care, insurance coverage, and utilities. This is like playing defense. While important, rarely does a defensive strategy gain ground on the issue.

Since we know inflation will always be with us, defining an offensive strategy to have the needed income to meet rising costs may be a more appropriate solution, or at least should be a greater focus for most retirees.

For assistance with portfolio allocations, insurance, estate planning, or investment management contact me at Quality Financial Concepts or one of the other Certified Financial Planners in our area. To continue a personal quest for education, you can also view our learning center on our website, www.goqfc.com. There you will find articles on a variety of topics, on-line seminars, calculators, as well as a host of other free tools.

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