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which is why expecting a price change index to mimic ones lifestyle and expenses is an insane thought . just because you are falling behind does not mean those in other situations are too . you can see kate's situation is very different from mine or my sisters . you can't blame the cpi for that . it is not what it is structured to do .
ss was never intended to be someones sole support .
as i posted many times ,study after study show that seniors are less effected by inflation than any other group . as seniors get older and older a lot of what they used to do or buy falls off a cliff and what they no longer spend covers a lot of what goes uop in price that they do spend on .
seniors spend in a smile shape . as kitces wrote :
Executive Summary
Most retirement research assumes that retirees spending from a portfolio will seek to maintain a “real” inflation-adjusted standard of living throughout their retirement, just as they implicitly would have if their portfolio had been paid out as a steady pension with an annual cost-of-living adjustment. However, despite the simplicity of this assumption, retirement research has increasingly shown that retirees actually experience a decline in real spending through their retirement, as the early “go-go” years transition to less active “slow-go” years and then finally wind down in a series of “no-go” years with little discretionary spending.
In a new study contributing to the literature on this subject, David Blanchett of Morningstar has issued a new study entitled “Estimating the True Cost of Retirement” that finds in reality, real retiree spending decreases slowly in the early years, more rapidly in the middle years, and then less slowly in the final years, in a path that looks less like a slow and steady decline and more like a “retirement spending smile” instead.
Implicit in these results is an acknowledge that, despite the common fears, even the uptick of health care expenses in a retiree’s later years are not enough to offset all the other spending decreases that tend to occur as retirees transition into the “no-go” years and other discretionary expenses fall significantly.
The implications of this research are not only that financial planners should be more cognizant to assume some level of real spending decreases throughout retirement (Blanchett’s research suggests this may be especially true for more affluent retirees who tend to have more discretionary spending that winds down over time), but also that the traditional research may be somewhat overestimating the amount of funds needed to retire in the first place, as a lower average spending level across all the retirement years means it simply may not take quite as much to retire as is typically assumed or modeled in a typical financial plan!
The article you quote doesn't look like a study to me, it looks like an investment adviser's handwaving to explain why an under-performing portfolio does not matter. "Don't worry about running out of money, because when you get really old you won't want it anyway." That is nonsense. End of life expenses are huge, as you are forced to hire people to do things you used to do for yourself. You have to hire a housekeeper or janitorial service, because washing the windows and scrubbing the baseboards is no longer physically possible. You have to hire a yard service to rake leaves, mow and maintain flower beds, or watch your yard turn into a squatter's jungle.
The real inflationary monster for senior citizens is medical expenses. You may think you beat inflation by signing up for Medicare, but that is a one-off benefit and you already cashed that check. Just three years ago, Medicare part B premiums were $104. Now they are $134, with a substantial increase in outpatient deductibles, so your out of pocket expenses for medigap and Part D insurance premiums are rising and will continue to rise at a rapid rate. Here is an article from April of 2015, essentially reflecting conditions just three years ago.
Assisted living is another area that is inflating at 5% a year, so the median $4100/month rent in New York State (not in the city) will cost you $6500/month when you check in ten years from now. I hope you like living in Buffalo.
You are right, the CPI means nothing to a senior citizen, and the fact that they are lying about the inflation rate means nothing to you. That doesn't mean you are going to dodge all those bullets heading downrange. You have the target tattooed on your chest. It would help if they weren't systematically reducing SS benefits.
The article you quote doesn't look like a study to me, it looks like an investment adviser's handwaving to explain why an under-performing portfolio does not matter. "Don't worry about running out of money, because when you get really old you won't want it anyway." That is nonsense. End of life expenses are huge, as you are forced to hire people to do things you used to do for yourself. You have to hire a housekeeper or janitorial service, because washing the windows and scrubbing the baseboards is no longer physically possible. You have to hire a yard service to rake leaves, mow and maintain flower beds, or watch your yard turn into a squatter's jungle.
The real inflationary monster for senior citizens is medical expenses. You may think you beat inflation by signing up for Medicare, but that is a one-off benefit and you already cashed that check. Just three years ago, Medicare part B premiums were $104. Now they are $134, with a substantial increase in outpatient deductibles, so your out of pocket expenses for medigap and Part D insurance premiums are rising and will continue to rise at a rapid rate. Here is an article from April of 2015, essentially reflecting conditions just three years ago.
Assisted living is another area that is inflating at 5% a year, so the median $4100/month rent in New York State (not in the city) will cost you $6500/month when you check in ten years from now. I hope you like living in Buffalo.
You are right, the CPI means nothing to a senior citizen, and the fact that they are lying about the inflation rate means nothing to you. That doesn't mean you are going to dodge all those bullets heading downrange. You have the target tattooed on your chest. It would help if they weren't systematically reducing SS benefits.
all these expenses you mention are not inflation related . you are getting confused between an expense and inflation .
price changes in the things you buy or use is inflation . adding help , long term care , a gardner , taking a trip or being buried are all adding additional expenses to your budget .
the fact i bought a new car because i have diabetic neuropathy in my feet and i want one that drives itself has nothing to do with the cpi .
for some healthcare will ramp up a lot as they age and for others nothing special .
but even so the studies do show that there is lots of spending going on in the go go years as kitces said - not so much in the slow go years and then ramps up again in the no go years .
theses studies have looked at all that and the conclusion was drawn not by what you or i think but actually following large groups through the retirement time frames .
adding additional expenses is an individual case by case situation and is no different than me needing long term care and not you. this is not inflation .
Last edited by mathjak107; 12-21-2017 at 01:44 PM..
We'll see if you are singing the same tune five years from now, when your purchasing power has dropped 30%.
my purchasing power will not drop 30% because retirees need equities and investments just so that does not happen .
but even so most retirees end up dying with to much money left over simply because traditional retirement planning figures on inflation adjusting every year , which is not needed yearly over the 30 year period , as well as anything better than worst case scenarios improves outcomes .
with a 60/40 mix, 90% of the time , drawing 4% inflation adjusted over 30 years had you dying with more than you started , 67% of the time you ended with 2x what you started and 50% of the time more than 3x what you started with .
we tend to look at certain times at our lives and we draw certain conclusions about spending, and what is going to be through strawman assumptions . but life rarely seems to play out that way .
all these formal studies tend to draw the same conclusion that inflation will kill retirees but it is not true .
additional expenses like long term care , that may be added kills retirees . but that is not inflation related , it is just adding expenses to the budget if needed .
You are absolutely correct! From what I've read on CD (or other websites), or from talking with seniors, it's all relative.
Couples having two s/s checks coming in each month v. seniors who live alone makes a huge difference.
Seniors who own their own home outright (mortgage paid off many years ago).
Seniors who are not solely dependent on s/s to survive (those who perhaps have received life insurance from deceased spouses; those who receive monies from their rental units; those who have pensions; those who have investments providing income).
Many may say, "Well, you should have planned better" are stating a moot point. Sure, wouldn't we all like the additional income each month but we can't turn back the clock.
Since retiring 7 years ago, my rent has increased 25.5% and my s/s check has increased 5.5%. . . that is reality for me and why I'm on wait lists for affordable senior housing that doesn't run $2,000+/month and is based on one's income. Forthcoming statements will more than likely be, "Well, get a job!!!". . . and it all comes down to "until you walk a mile in my shoes. . . ".
Am very happy for those who are financially set, good for them!
It's very beneficial to offer support and helpful advice; chastising is useless (and cruel).
My apologies. . . I made a mistake. The % increase in my rent I wrote about was not based on the 2018 amount. . .therefore, my rent has increased 27.5%, not 25.5%.
It isn’t just the COLA percentage but the dollar amount it is applied to. That can vary from putrid to pretty good results especially if also applied to pensions with compounding
my purchasing power will not drop 30% because retirees need equities and investments just so that does not happen .
but even so most retirees end up dying with to much money left over simply because traditional retirement planning figures on inflation adjusting every year , which is not needed yearly over the 30 year period , as well as anything better than worst case scenarios improves outcomes .
with a 60/40 mix, 90% of the time , drawing 4% inflation adjusted over 30 years had you dying with more than you started , 67% of the time you ended with 2x what you started and 50% of the time more than 3x what you started with .
we tend to look at certain times at our lives and we draw certain conclusions about spending, and what is going to be through strawman assumptions . but life rarely seems to play out that way .
all these formal studies tend to draw the same conclusion that inflation will kill retirees but it is not true .
additional expenses like long term care , that may be added kills retirees . but that is not inflation related , it is just adding expenses to the budget if needed .
Any individual expense is a personal choice or necessity, so is not directly related to inflation. However, every penny you spend is related to inflation, as is any increase in your income. It's easy to look at a portfolio returning 6% a year and think you are doing OK, when in fact you are losing 4% a year. At age 70, my net worth in unadjusted dollars is still rising nicely. That does not mean I have bought into the delusion that I am getting richer. If you believe that inflation is only about 2% and that 10 years from now everything will only cost 22.5% more, I wish you luck. If you think your equity investments will keep right on posting great returns, I wish you luck.
I know for a fact that my property taxes will increase 3% a year, because that is the statutory maximum in my state. That means that ten years from now my property taxes will be 34% higher. Every other will have increased too, but they are not capped by statute. My rough guestimate is that my living expenses will increase a total of about 80% over the next 10 years, regardless of what I buy or don't buy. I fully expect to have to pony up another $5,000 a year for medical expenses, and a similar amount for my wife, mostly just for increased Medicare and supplemental insurance premiums. You and I can afford that, because SS is only a minor part of our incomes, but the poor chumps who depend on a SS check to pay the bills are being screwed blind by the creative book cooking on the part of the feds.
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