If You Believe Inflation Is 2-3%, You’re Living In Fantasy Land.

There’s a cold hard truth about the reality of inflation that you’re probably not aware of. Ever wonder why after you’ve made the 2 to 3% adjustment to cope with rising inflation costs you still can’t make ends meet? Same thing if you’ve gotten a 2-3% raise. You’re still not keeping pace with the economy. That’s because you’re being lied to as to what the true rate of inflation really is.

The truth of the matter is that we have been blatantly and systematically lied to about inflation. By repeatedly changing the way inflation is measured, the government winds up misguiding the public as to the true effect on our wallets. This is good for politicians and the Federal Reserve (which is a private entity owned by commercial banks, run by non-elected government officials), but dangerous for us, not only because we underestimate our need for money in the future, but also because we are ultimately being fleeced. (click here)

The CPI (Consumer Price Index) is the measurement used by the government to calculate the rate of inflation. It’s in the government’s best interest to show that the rate of inflation is low. This way they can regulate prices, calculate wages and pensions, control Social Security’s annual COLA (Cost Of Living Adjustment) increases as well. Financial planners, the kind we all listen to, use this data to predict future costs.

The problem with this pricing methodology is that it paints an untrue portrait of inflation. The CPI measures inflation by the amount of the price of a “basket of goods and services” used by consumers changes over time. But the basket itself actually changes. If the price of a porterhouse steak is included in the basket and the price rises, a family may substitute chopped hamburger beef. The government shrugs and says “See, they’re still eating beef” so there’s no inflation nor rise in the ‘basket of goods and services’.

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The CPI leaves out a lot of things when they calculate the rate of inflation. For example, they leave out housing costs or rents. All of us know that those two things are rising way higher each year than the 2-3% projected. Over a 50 year period, housing costs have risen 216%. Housing costs in one area of America will probably be priced differently in another part of the country, so where you live can affect your price experiences.

You should not expect the national or a regional CPI to always mirror your price experiences. Another factor in whether you think the CPI reflects your price experience is that most consumers notice price changes in those goods and services purchased frequently. These items, such as food, clothing, and gasoline, have relatively large price swings because of the seasonal influences in supply and demand. Less attention is paid to many items (such as most household appliances) that are purchased infrequently, which often have relatively stable prices. (click here).

Critical cost of living increases are NOT factored into the CPI.

The true costs of rising healthcare is a glaring exception in the CPI calculations. This one factor affects senior citizens the most. Seniors spend more on health care than the younger generation by at least 20%. Financial planners miscalculate the true rising health care costs by advising their clients they can live on less in their retirements. This is a very costly mistake to our senior citizens.

OK. We have the facts now. Inflation is huge. What do we do? Is there a solution?

Financial Planners advise folks preparing for retirement that there is only one course to prepare for inflation and that is to invest “wisely” in the stock market. Forget CDs or Money Market funds that traditionally pay out low rates. You’ll never earn enough to keep up with inflation! Instead, take on risk and seek out high-paying yields, dividend paying stocks and bonds and inflation will be under control.  This is such a crock of BS! The markets go up and the markets go down. Heaven forbid if you’re in a down market, retired and need to CYA (Cover Your A$$) and pay your rising bills. You’re advised not to sell or liquidate but simply just withdraw from your cash reserves to tide you over. Really? Tap into your principal  which would then permanently reduce your cash reserves forever?

Other tidbits of advice, for retirees to keep up with inflation in their retirement years is to #1 Work longer and save more. #2 Estimate inflation at 4% or higher. #3 Own income-producing assets, such as rentals or cash-flowing businesses. #4 Support putting the dollar back on the gold standard. Forget this option. Never going to happen. The government knows its got a good deal going.

“By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens.”  – John Maynard Keynes

I’ve been retired now for 18 years and I have also met a lot of retired folks over these past 18 years. I’ve noticed one constant trait in all these people as their retirement years progressed. Everything was fine and dandy when they first retired. They traveled. They bought properties in gated retirement communities. They play golf. They play tennis. They buy cars. They attend parties and functions. And when they all have a few drinks in them, they start to tell you the truth and the reality of their so-called retirement years. Practically all of them have side hustling jobs/hobbies (whatever you want to call them) specifically to bring in extra money because their Social Security checks, pensions, annuities, investments just aren’t bringing in enough cash to keep up with all the rising costs they face daily.

helen-mirren.jpgDon’t believe me? Just look around you. Practically everyone, whether celebrity or a regular Joe or Jane are working. Look at your TV shows. See a lot of actors and actresses with gray hair, still working? Mick Jaggar is 76 years old and he is still touring with The Rolling Stones. Mick had a little heart event last year but that didn’t stop him from finishing out his tour, did it? Liam Neeson is 67 years old and is still kicking (literally) butt to save his daughter’s kidnapping, airplane hijacking or train robbery. Helen Mirren is 76 years old, still making movies and peddles skin care routines in TV advertisements.

Do you think these people continue to work because they love their jobs? Nope. They have expenses, which keep rising and they want to continue to live their lifestyles.

So, here’s the three legged stool retirees use in order to keep up with the true reality of inflation: they learn frugal ways, they save and invest cautiously and they continue to work because they have come to the realization that the only way they can keep up with the rising costs of everything is to keep bringing in those dollars. Period.

Thankfully there are many things a senior citizen can do, to keep earning money without working as a greeter at a Wal Mart (NOT that there is anything wrong with that!) Social Media has opened many doors to seniors who can earn money from the comfort of their own computer at their home desk. Many seniors are making videos on YouTube, producing podcasts or blogging (yours truly) on many topics that solely interest other fellow retirees. For a more complete list of senior job opportunities click here.

My final thought is that we may have to keep on working in our retirements because no one has been honest about inflation with us retirees. We haven’t been advised to save enough, downsize and live frugally enough and realistically I don’t see Wall Street investments giving us the steady income we probably need in our later years. We may have to side-hustle well into our 80’s to maintain any quality of life. Which is probably one of the reasons many of us are living longer and healthier. Jobs give our lives meaning and direction. It keeps our minds young and sharp. Jobs give us hope.

Live well and prosper, my friend. Live well and prosper.

 

 

 

 

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27 comments

  1. I too always knew inflation rates were under stated-particularly for things that the average Joe needs and wants-like food, housing, transportation, and health care-not even talking thrills. We are trying to increase our cash savings and figure out some little side money earning things for just what you state. It’s hard right now since we have a child just starting college, but even now, we are looking where a few extra bucks might be stowed away. Still, need to live life so happy to find fun on a budget. Good post today, Cindi.

    Liked by 2 people

  2. You are preaching the truth! Suze Orman may have been right, I may need to work until I am 70. I don’t think I can handle my current job past 62, or maybe 65, but I have seriously looked at nomadic jobs. Lots of Seniors are wintering in Quartzite, Arizona, and working the sugar beet harvest in North Dakota, Amazon jobs, workcamping jobs, etc. I have looked into it. My current plans (I am 59.5) is to work at my regular job as long as I can then switch to another job, if possible. Of course, it is kinda a crap shot with how my health will hold out.

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    • Cindy, my husband works just two days a month and it’s enough to cover the deficit! My girlfriend hooks people up to cruises. Every one that signs she gets $50 plus one free cruise every year when she reaches a certain number of recruits. These are easy peasy jobs. Another friend of mine has jewelry parties. Another guy I know coordinates yacht club memberships. Things like these are fun and rewarding. I really wouldn’t consider them job jobs. Working those Amazon jobs are back breaking and strenuous. Don’t consider those please! Stay on your track. Work at your job as long as you are able. Then see if you can turn a hobby into a cash flow. Maybe rent out a room in your home. Something not strenuous. You don’t have to work till you are 70 at a regular job.
      You’ll figure it out.
      Thanks for your comment.

      Like

  3. Hi Cindi,
    You are always working on your budget figures and cutting here and there. I am wondering if you have tracked your personal inflation rate over the years? Sincerely, Lara

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    • Hi Lara. No I never have. I would imagine it’s nill because I keep my bottom line hovering between $2500 and $2900 a month. Medical costs at times double so I just cut back somewhere else. Or I seek out lower cost alternatives.
      Is there a formula or rule of thumb to calculate a personal rate of inflation? I’d be curious.
      Whatever my own personal rate of inflation may be, I know one thing for sure: it’s certainly NOT 2 to 3%.
      It’s way higher than that.
      I’ve had bills increase by 50%. I’ve had others, such as my medical insurance premiums increase by 94%.
      Home insurance increased by 40% and I could no longer bring the cost down by upping the deductible.
      Car insurance has gone up 28%. Again, I made a few changes to my plan but deductibles can’t be changed anymore.
      My own personal food basket has gone up by 20%. But unlike the government, if steak prices rise and I can’t get it on sale, I don’t substitute chopped beef. I either get lower cost turkey/chicken or go meatless a day extra per week.
      If I just look at the above examples and average it out, my costs have increased by 46%.
      That’s a very far cry form the 2 to 3% the govt claims is the CPI.
      I compensate by cutting back, increasing income and inserting in substitutions.
      No investment is going to give me a 46% return.
      Thanks.

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  4. Hi Cindi, I do Two different annual personal inflation figures : first my total spending and then a total necessity Spending. Total spending difference indicates lifestyle inflation. So if you used $2500 a month or $30,000 Then the next year use $2900 or $34,800 the next year. The total difference is $4800. You increase your Total spending by 16%. You multiply the difference In spending by 100 . And then divide it by your last year’s total budget.
    You would find out the part of each Year’s necessity total budget For all your expenses which includes Groceries, utilities, Insurances, taxes, home maintenance And replacement appliances and services, and transportation cost. I would put the RV and travel cost, restaurants, and hobbies, entertainment, and clothing, gifts in lifestyle inflation calculation. And do the same thing. So say necessities cost $20,000 to $21,000 an increase of $1000 that’s a 5% increase. 1000( the difference) times 100 ( percentage) divided by last years total necessity budget. ($20,000) equals 5%. So your personal lifestyle inflation choices you make on discretionary spending increase 11% in this example . Hope this helps. Lara

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    • Thanks Lara. It does help.
      I calculate price increases by profit and loss. That’s the business side of me.
      I looked up how to calculate inflation, which is what you demonstrated here. You divide the difference in pricing into the current amount. Multiply by 100. That gives you the inflation rate.
      Whatever my inflation rate is, it’s not covered by my investments. Unless you’re a billionaire, I don’t see any solution other than the three-legged stool I laid out for dealing with inflation: savings, investments and part time work.
      UGH!

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  5. 2017 and 2018 changed my financial footprint and my financial planning. I spent so much money on tornado damage, four system repairs-Well, septic, Heating and electrical, new driveway and bathroom vanities, and Large Roth conversions Increasing my taxes.
    2019 exterior house painting, kitchen flooring asbestos abatement and new flooring, and back porch rescreening and wood replacement . Driveway sealing, landscaping help besides lawn services. Continue Roth conversions so increase taxes. A new car! Making this list makes me realize how amazing that I still increase my net worth each year with new financial investments. A 300% increase! Lara

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  6. People may need to work or want to work until they are in their 70s but I know a lot of people whose health simply won’t let them. Save, save, save.
    Also, they never include the increasing cost of homeowners insurance or automobile insurance. Save, save, save.

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  7. Two years ago we changed our car/housing insurance from a large, well-known company that we had been at for years. We are still with a nationally known company but save $1000.00 a year. Also, review any services that you pay for…cell phone, TV services, etc. to see if there are any less expensive plans that would be good for your budget. Just went to a seminar on medicare and supplemental insurance services in my state and there are quite a bit of differences in what you pay for policies. That can be an area for savings. I know many people like to stick with what they know (my husband) but there are many ways to save money. Diane

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    • Hi Diane. Thanks for the tips! We did the same thing with our car and home insurance too! That was a very good idea to attend that seminar. Lots to learn. Very confusing to say the least. Thank you for your comment.

      Like

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