Even those cost of living adjustments won't be enough to keep me whole, though, because inflation rises faster for the elderly than it does for the rest of the population. The Labor Department's Bureau of Labor Statistics has been computing the consumer price index-E (for elderly) with figures going back to December 1982. What they show is that through September 2007, the CPI-E had increased by 124.9 percent compared with a 108.1 percent increase in the CPI-W (for working).
The reason is that the elderly spend more of their income on the component of the CPI that is going up fastest -- medical care. According to the CPI-E, as of the end of 2006, the elderly spent more than twice as much of their income on medical costs as wage earners. And compared to a 29.7 percent increase in the cost of all items in the CPI-E for the 10 years ending in December 2006, the cost of medical care went up by 47.8 percent. The one category that has gone down in price over the past 10 years is apparel, which the elderly buy relatively less of than workers, which means they benefit less from that decline in prices.
When planning for retirement you really need to look at your own likely inflation profile. If you live in an area with rapidly rising housing prices you might get hit by rising property taxes. Though on the bright side your house will become worth more. Also, if you live in a cold rural area you'll be harder hit by rising oil prices for transportation (you'll drive further than an urban dweller) and heating (both heating oil and natural gas prices will rise).
When you are ready to retire think about moving to a place where you will suffer less inflation. For example, heating fuel price inflation can be reduced in a number of ways. Move to a warmer climate or a well insulated house or a house with large wooded lot which can supply fuel to a large wood burning stove. Also, choose an area of the country which has lower medical costs. A more densely populated area and a house near stores can reduce transportation costs.
|Share |||By Randall Parker at 2007 October 28 06:19 PM Economics Aging|