Your Personal Inflation Rate Versus Published Inflation Rates

The cost of daily living, especially health care and long-term care, are not going down. But your ability to pay for them will drop once you retire. In fact, the longer you live, the higher the impact of inflation will be.

A case in point: The cost of a first-class forever stamp jumped 10 percent from 50 cents to 55 cents on January 27, 2019. On January 1, 1952, a first-class stamp only cost 3 cents for the first ounce.

People are living longer, much longer. A couple, both age 65, have a 50 percent chance that at least one of them will live to age 92.1 The government’s published CPI is for everything and everyone in general. Your personal inflation rate will be higher because, as you age, rising health care and long-term care costs will be a more significant proportion of your spending.

Health care costs are escalating. According to the U.S. Bureau of Labor Statistics, health insurance experienced an average inflation rate of 2.63 percent between 2005 and 2019. The overall inflation rate was 1.84 percent during this same period. What cost $20.00 in 2005, cost $28.76 in 2019. That’s 43.78 percent higher 14 years later.

Seventy percent of people 65 and older will need long-term care.2 However, Medicare will only pay for a limited number of days of skilled nursing care and only after hospitalization.

Unfortunately, these long-term care costs are rising at historic levels–much faster than other expenses. While the cost of living increased by 1.7 percent, long-term care rose 4.5 percent.3

Early planning for a longer life and a higher personal inflation rate is critically important. That’s why we at Smedley Financial create and build plans for our clients to live to age 95 as well as develop a realistic, personal inflation rate for you to help you prepare for the coming surprises of retirement.

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