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Considering the Impact of Inflation

Inflation is a financial consideration that is always with us in one form or another. Most recently, the lack of inflation was the stated reason for a zero cost of living adjustment for Social Security recipients. The reasoning is that with prices not going up very much if at all, then there is no need to increase the benefit to meet them. Of course, the cost of many items such as health care and the price of beef are currently going up while our gasoline cost has been very low of late.

What we can take away from these various pieces of information is that there is likely to be inflation by some measure even when the government cites a different measure to justify no Social Security COLA. This in turn means that when we are budgeting for the future, we need to assume that some costs are going to go up over time and we will need to have more funds to address that. The flip side is that the same number of dollars will very likely buy us less in the future.

Bottom line – no matter what is said about inflation or its absence, it will be foolish to presume that what costs you, say, $100 today is going to still cost you $100 in two or three years. Certainly for some things that will be true but for many it will not be so. A favorite example here is the monthly cost for Medicare Part B, a sum that is taken out of one’s Social Security benefits before you ever see the rest of the money. This year, if you are lucky enough to be receiving your benefits AND have an income below $85,000 for an individual or $170,000 for a couple, your monthly Part B charge of $109.40 will be unchanged. Higher incomes? You will pay more, a lot more for this premium charge than you did for 2015.

What is funny about all of this is that the government requires you to pay for these medical benefits and then turns around and says there is no inflation and so no cost of living to offset the increase in what you HAVE to spend. If you do not think that makes sense, you are not alone. But the real point, once again, is to remember that things will tend to cost more over time and you need to plan for that when you budget for your future. 

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