How Inflation Affects Your Financial Future

Tuition, medical fees and housing costs are all going up faster than inflation.

Man holding portrait of older version of himself
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By Tom Sightings

People retiring today can expect to live another 20 years, according to Social Security figures. But in making our financial plans, we have to account for 30 more years, since roughly 1-in-5 of us will live past age 90.

Once you're retired, you live on a fixed income. There are no more raises, bonuses or employer contributions to your retirement plan. Even if you can afford your lifestyle today, you have to worry about what's going to happen over the next 30 years as prices inevitably climb, some years more than others. Will Social Security keep up? Will your investments produce enough income?

Think of what happened over the last 30 years. In 1983 the average college tuition was less than $4,000 a year. Today it's over $23,000 a year. The cost of college is up 600 percent. At that rate, in 30 years average tuition will be well over $100,000 a year, while top private colleges will charge two or three times that much.

If your kids are grown up, you no longer have to worry about college tuition. But you do have to worry about medical costs. According to Bloomberg, medical expenses have also increased 600 percent in the last 30 years. And hospitals have given us an even bigger dose of inflation. Back then a typical five-day stay in a hospital cost around $600. Now it averages $20,000. At that rate, by the time we're 90 the cost of a hospital stay will top half a million dollars.

My wife and I are thinking about relocating in retirement, so we've been looking at real estate prices. The house we now live in is worth, according to Zillow, roughly $550,000, which is about average for a suburban home in the Northeast.
But when the place was built, some 30 years ago, it sold for less than $70,000. That's an eight-fold increase, even accounting for the recent slump in real estate. If you want to buy this house in 30 years it might cost over $4 million.

I don't want to scare you too much. According to CNN, for the last 30 years college tuition, medical fees and housing costs have all gone up faster than the general rate of inflation. The consumer price index –- the price for an average basket of goods and services -– sits at a more modest 235 percent level compared to 1983. Whatever cost $100 back then now costs $235.

Some items have gone up less than inflation. I recall buying a Toyota Camry in 1984. It set me back about $12,000. Today that car costs around $22,000, or less than twice what it did 30 years ago -– and it's a better car. The price of most foods, from milk and eggs to coffee and alcohol, have also gone up less than inflation.

In 30 years, if I'm alive at all, the only people interested in the value of my house will be my heirs. But I might still want to drive my old Toyota, and I'll want to eat or mail some Christmas cards or help my grandchildren pay for college. If prices continue for the next 30 years the way they have in the past, then a gallon of milk or a box of cornflakes will still be under $10, but a gallon of gas will gear up to $12 and a book of stamps will stick you for $21. If your genius grandchild wants to go to Stanford, the price will be well over $1 million.

Meanwhile, next year's increase in Social Security is all of 1.5 percent. That follows a 1.7 percent increase for 2013, a 3.6 percent increase in 2012 and no increase in either 2010 or 2011. It's not much, but it's something.

Your investments will probably go up more. In November 1983 the Dow Jones Industrial Average sat around 1,250. Now it's bumped up to 16,000 -– a more than 12-fold increase. According to Fidelity Investments, for workers "age 55 or older who have been active for at least 10 years, the average 401(k) balance is now $269,500." All other things being equal, that balance will top $3 million in 30 years.

Of course, there's no guarantee that the next 30 years will bring inflation or stock market gains like the last 30 years. But forewarned is forearmed: You must take inflation into account as you plan for your future. Meanwhile, look at the bright side –- at least we'll be able to afford to eat a decent breakfast.

Tom Sightings is a former publishing executive who was eased into early retirement in his mid-50s. He lives in the New York area and blogs at Sightings at 60, where he covers health, finance, retirement and other concerns of baby boomers who realize that somehow they have grown up.

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How many screen names is Evan using today?

December 02 2013 at 3:00 PM Report abuse -3 rate up rate down Reply

I\'m taking some advice from Al Franken Farce, and by the end of the month, I\'m getting rid of some Democrats too. That should help the bottom line.

December 02 2013 at 11:58 AM Report abuse -1 rate up rate down Reply

To add to our national debt in the decades to come is to pay the troops that were wounded and handicaped from the war in Iraq and Afghistan. You republicans must be very proud of the years of bush/chaney. Now lets see how many trillions did bush jr. take out of social security to make his debt look better. Oh yea, he put in treasury notes to cover the loan. with very low interest.

December 02 2013 at 3:32 AM Report abuse +1 rate up rate down Reply

Talking about printing money well, lets see, The federal reserve chairman that is and has been printing all the money is a bush jr. appointee that has been in office since President Obama took office. Yup, you republicans are at fault here too. All these years at 85 billion a month adds up to trillions. So if we subtract the trillions off President Obama debt he would be looking pretty good.

December 02 2013 at 3:29 AM Report abuse +1 rate up rate down Reply
1 reply to toosmart4u's comment


December 02 2013 at 4:31 AM Report abuse -1 rate up rate down Reply

Another rather meaningless article that has a lot of flawed, if not totally inaccurate that bit about the 401K. If you are 55 or over and have an "average" 401K balance of approximately $269,500, you are likely going to be tapping into that long before any additional 30 years of projected growth can turn it into $3 million??? . When was this guy thinking of retiring and drawing on his age 85 or 95? Just inane.

December 01 2013 at 11:46 PM Report abuse rate up rate down Reply

Socialism is rising in the US and soon the few will pay for the many until they are bled dry. Amnesty is next. Then the world currency will be changed to something other than the dollar. With the lifting of the sanctions on Iran they too will soon be buying precious metals again. They will merge with China, Russia and others who are buying precious metals at enormous rates and by, by dollar bill as the world currency. It happened to England. Check your history. Destruction is almost complete.

December 01 2013 at 7:31 PM Report abuse -1 rate up rate down Reply

think itsbad now if janet yellon is put in to head the federal reserve bank she will print more new money.. she thinks the kensy plan of imputing more money into the economy will increase jobs and growth. she said in 2010 that bernanke's printing of money would have this country booming in a year. she plans on printing way more than the 85 billion a month that bernanke is doing.. were headed for a finacial crash of our fiat currency the dollor.

December 01 2013 at 7:27 PM Report abuse -1 rate up rate down Reply

Borrowing and printing money. $17 trillion debt with no plan or attempt to pay it down. Should we really worry about inflation? You better believe it!

December 01 2013 at 6:58 PM Report abuse -1 rate up rate down Reply

Because you get less value for your money which is like a decrease in salary.

December 01 2013 at 6:31 PM Report abuse +1 rate up rate down Reply


December 01 2013 at 4:25 PM Report abuse +3 rate up rate down Reply