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Author: WendyBG Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Feste Award Winner! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 1491  
Subject: Inflation in large budget items Date: 10/10/2003 2:32 PM
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Markr33 pointed out, in an excellent post, that insurance is a MAJOR budget item for retirees. Whatever your discretionary expenditures, everyone must have health, auto, and homeowner's insurance.

My biggest budget items are taxes and insurance. Both of these categories already, or soon will, show much higher inflation than the broader CPI.

My health insurance rose 15% last year. My homeowner's rose 12%. Given the large deficits of state and local governments, we can assume that taxes will also rise.

The fall in the dollar, in my opinion, has only just begun. The extreme U.S. current account (trade) and Federal budget deficits guarantee further falls in the future. A falling dollar will inevitably lead to inflation, since it will take more dollars to buy imported goods (such as oil). This will be particularly true, if oil producing nations begin to quote their prices in euros, as Russia is contemplating.

Current U.S. government policy is analagous to the late 1960s (Iraq/Afghanistan = Vietnam, Medicare drug benefit = War on Poverty). As we all know from bitter experience, Guns & Butter spending, unsupported by taxes, leads to higher inflation, in the 3 to 5 year time frame. Once started, it's hard to turn around.

We can be fairly sure that budget items that have a higher-than-average inflation rate now will continue their rapid rise in a generalized inflationary economy.

Yields on "risk-free," inflation-protected investments (such as I-bonds), are pegged to the CPI-U.

I am seriously concerned that my largest budget items, especially health insurance, will rise so much faster than my retirement income that I will fall behind the 8-ball.

I'd appreciate some input on this.
Wendy
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Author: workwayless Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 84 of 1491
Subject: Re: Inflation in large budget items Date: 10/10/2003 3:44 PM
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I am seriously concerned that my largest budget items, especially health insurance, will rise so much faster than my retirement income that I will fall behind the 8-ball.


I too share your concern about the rising cost of health insurance. Here's what I've done to mitigate the effects:

1) While I was working, I secured my own health insurance policy--as opposed to employer-supplied. This has given me number of years of history to find out the actual cost of post-FIRE health insurance so that I could factor it into my "worse case" scenario planning. So even if I continued to sustain increases in the future, I wouldn't be likely to run out of money.

2) My policy has a high deductible. The higher the deductible, the lower the premium. While it's true that I've been incurring increases averaging 15% per year, it helps that my premium cost started at a low dollar figure to begin with.

3) Since health insurance is such a runaway expense, therefore I keep my other expenses as low as possible. You mentioned CPI. Since I keep my non health insurance expenses lower than the CPI, then I have found that my overall personal CPI pretty much tracks with inflation.


Another approach some have tried is to invest in health care related stocks.



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Author: iamdb Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 86 of 1491
Subject: Re: Inflation in large budget items Date: 10/10/2003 10:07 PM
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Wendy,

We sense that inflation in health care insurance is our greatest threat to financial planning in retirement. The full-coverage Blue Shield insurance through my wife's former employer costs a little over 10% of the income we take (social security + pension w COLA + RMD from an inherited IRA). For the first time, this year did we were notified the rate was dropping slightly.

Our plan is to move eventually into a retirement community in Montecito that has level costs regardless of the level of service required. Buyin for a two bedroom unit is about $500K with a fee of about $2500 month. It is rather like living at a deluxe resort that also happens to have extensive medical facilities. (Indeed many of the residents also own other homes.)

db



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Author: WendyBG Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Feste Award Winner! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 88 of 1491
Subject: Re: Inflation in large budget items Date: 10/10/2003 11:32 PM
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<Buyin for a two bedroom unit is about $500K with a fee of about $2500 month. It is rather like living at a deluxe resort that also happens to have extensive medical facilities.>

<Gasp!> <Looonnng whistle!>

Why is this more practical than living at home, buying health and long-term care insurance, and covering any uncovered medical expenses as needed?

Wendy

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Author: Blackduff Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 91 of 1491
Subject: Re: Inflation in large budget items Date: 10/11/2003 3:02 AM
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I was just going to ask about this too. What does the $2,500.00 per month?

Does the special medical facilities pay for this fees or is it just area to find the purpose facilities locally.

I was talking yesterday with a guy who is developing a place who sells to retired people. They pay monthly pays of $1,000.00 and the guy thought that this price was normal. To me, it is costly.

The medical facilities were just having them locally. You still for the doctor (nurses, etc.)fees. You are only paying for the convenience of being the facilities.

I would quickly move out into a lower rental area. I can find a doctor locally and put the money into my pocket.

Blackduff

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Author: iamdb Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 95 of 1491
Subject: Re: Inflation in large budget items Date: 10/11/2003 4:19 PM
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Wendy,

I'm not recommending this for everyone, but the waiting list is five years long, so some folks think it's worth the price. For us, part of the appeal is that it's just up the road and still within walking distance of the beach.

For one thing, you can't buy anything in Montecito for $500K -- last I read, median price house was around $2.3 million, and even a decent condo costs well above $1 million and can go above $2 million. The retirement resort was converted from a grand estate decades ago, so the grounds are beautiful. Residents come from around the world, and include the rich and famous. Many have their cottages extensively remodeled, and some combine two units to create an even larger living area. We ain't talking about poor folk like you and me here.

Not all of Santa Barbara is that expensive. My mother moved to a very deluxe retirement resort where her moderate size one bedroom apartment was a little under $100K, with a fee of about $2,000 a month. But if she needs assisted living or nursing care, her monthly costs can go up substantially. Her first choice was the flat-rate community discussed above, but she was still on the waiting list when her current place became available.

You pays your money and you takes your choice.
db



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Author: Blackduff Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 98 of 1491
Subject: Re: Inflation in large budget items Date: 10/11/2003 6:38 PM
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db
I still find that the annual ($2,500 times 12 months)of this payment. That would be $30,000 per annum and this could probably move higher as the years move along.

I live for my whole yearly costs is just $36,000.00. I already have my home paid but the taxes, etc. are included in the 36K. This amount will include my health insurance too. My area wouldn't be too shabby either. I'm about 4 miles from the Mediterranean.

Like you said, "You pays your money and you takes your choice".

Blackduff



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