Inflation is a big buzzword in the media today as economists and analysts predict when inflation will hit and how severe it might be. Inflation is a general increase in prices and some inflation is normal. Over the past 20 years or so, inflation has averaged between two and three percent every year and a mild rate of inflation is part of a healthy, functioning economy. The late 1970’s and early 1980’s were a time of massive inflation that many people still remember and while most don’t expect upcoming inflation to be that extreme, many wonder just how much inflation we’re likely to experience over the next decade with so much government spending planned for the next couple of years.
Even though inflation seems mild on the surface, there are certain demographics that are experiencing inflation far above the publicized inflation rates. If you’ve put a child through college over the past few years, you’d probably laugh at the idea of inflation being mild, and you’d be right. Here are three categories of people that should be planning for inflation regardless of mild inflationary headlines.
– Parents of Future College Students: There are abundant statistics you can find about the cost of attending college–here are some that might surprise you. Most parents think of college costs and decide that they’ll be able to handle the costs of furthering their child’s education if they stay in-state and attend a public school. When you add up the costs of tuition, fees, room, and board, an in-state public education has still increased by an average of 6.5% over the past 30 years. At that rate, a child who is 12 today will pay over $100,000 for a four year education starting six years from now.
There are a few things parents can do to plan for this growing cost. First, start saving now in a college saving vehicle. There are 529 plans, prepaid tuition plans, education IRAs or even custodial accounts that can be used to start investing for future college costs. Second, look into grants, scholarships, and other forms of financial aid early and plan ahead to qualify. Finally, get a line of credit in place on your home if possible in case financing is difficult to obtain when you need it.
– Retirees: People entering retirement are susceptible to inflation because many are entering a period of time when they will be on a fixed income. Budgeting is difficult when your income is limited because of the danger of burning through savings too quickly. Add to that growing medical costs that come with growing older and every dollar of purchasing power is essential for retirees. On top of that, Congress eliminated Cost of Living Adjustments for 2010 Social Security recipients and there is no guarantee of future adjustments keeping up with inflation.
– Elderly People: With medical advances allowing people to live longer than ever before, a growing number of people will spend some time in nursing homes during their later years. The cost of an extended nursing home stay can be enough to deplete an individual’s savings very quickly, and many long term care insurance policies do not include inflation riders to offset the rising costs of care. Inflation varies from state to state for elder care, but an inflation rider is an important element of any long term care policy, as many states are reporting annual cost increases in excess of 8%–so much for mild inflation!
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