Retirees face higher costs while inflation is low

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The US economy is growing faster than its pace in the long run, unemployment is low and wages are rising. Core inflation – which stood at 1.6% in March – has not changed significantly. This lack of price increases was a determining factor for the Federal Reserve's decision to put pressure on interest rate hikes.

However, while economists talk about inflation – which covers a wide range of personal goods and services – financial advisors have a different calculation.

"If you look at where a lot of retirees spend their money, it's for health and recreation," says Kathleen Benjamin, financial advisor and chief operating officer at BFG Financial Advisors in Cincinnati. "And these prices have risen faster than more general figures for inflation."

For this reason, she and her colleagues generally double the inflation rate (most of their plans being based on inflation of 3.5%) when estimating future retirement or retirement needs. evaluation of withdrawal rates.

When planning long-term expenses, you must be careful in your overall estimates.

In addition, retirees can also take a targeted approach. Identify the most important expenses and look for ways to save for them or keep prices up.

Save specifically for health care

National spending on health care has increased by about 5.5% in 2018, according to the latest forecasts from the Centers for Medicare & Medicaid Services. Meanwhile, the prices of many procedures, such as knee replacements and hospital stays have increased faster than the overall economy, according to data compiled by the system. Peterson-Kaiser health monitoring.

For this reason, Michael Cocco of AXA Advisors in Nutley, N.J., encourages clients to try to maximize savings in a Health Savings Account (HSA). These accounts offer what councilors call a triple tax advantage, as they allow tax-deductible annual contributions of up to $ 3,500 per person and $ 7,000 for families (plus $ 1,000 for seniors). 55 years and over).

There is no provision for use or loss for these accounts, and the income from them is not taxable. When the time comes to use the funds for eligible health care expenses, these withdrawals are also tax-free. To make contributions, however, you must be enrolled in an HSA qualified insurance plan.

At home in affordable markets

Housing prices also exceeded inflation. Nationally, house prices rose 4.9% between February 2018 and February 2019, according to the latest figures from the Federal Housing Finance Agency.

While many potential retirees work around this by paying down their mortgage and staying put, this strategy may fail for anyone considering moving to a more expensive market or housing for the elderly.

The self-sufficiency rate of seniors increased by 2.6% from 2017 to 2018; Living expenses for seniors increased by 2.4% and memory care by 3.2%, according to the reference service for seniors, A Place for Mom.

Fortunately, housing prices vary enormously from one market to another – and this also applies to housing for the elderly. For retirees having the flexibility to relocate, shopping for a more affordable market is one way to mitigate home price inflation.

Last but not least – leisure

Overall, travel prices have increased at the same rate as inflation. The latest statistics from the US Travel Association show an annual increase of 1.9%, although the reduction in transportation costs – including a nearly 3% drop in airline fares – offset the rise in prices in the United States. Other regions. The costs of food during travel and accommodation both increased by about 3% between March 2018 and March 2019.

Of course, the main factor in travel and leisure expenses is not an increase in prices, but an increase in leisure time. In a Capital Group survey, 40% of retired baby boomers reported spending more than expected on travel.

The best way for retirees to control these costs is to exploit their strengths. AARP members have access to a wide range of discounts and many major airlines and other travel agencies offer lower rates to seniors.

Relaxing flexible hours – traveling off season and buying airline tickets with flexible dates – can also help retirees spend more money.

A little closer to home, retirees can do business by working as ambassadors (an option at ski resorts and many golf courses) or by volunteering. Whether for the performing arts, music festivals or unusual conferences, volunteers often have the opportunity to experience some of the best seats in the house, as well as discounted tickets for other events.

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