The bad, but not so surprising, news? Triple-digit inflation has set in on medical bills and prescription drugs over the past 30 years.
A recent article by CNNMoney illustrates a radical decline in what we pay for manufactured goods while the cost of service-related products continues to soar. (Toys, 78 percent less; clothes, 46 percent cheaper even with the shoulder pads. A hospital stay, 197 percent more; prescription drugs, up 89 percent.)
What does this mean if you’re socking away money today for retirement? Unless you plan to spend your 401(k) cash on a full toy box and a fabulous wardrobe, much of your savings will likely fund services that’ll be wildly more expensive in the future.
The Employee Benefits Research Institute is quoted in a recent USA Today article:
“EBRI says the average 65-year-old couple in retirement should expect to pay $163,000 in out-of-pocket expenses for health care, excluding long-term care. And even then, they have only a 50% chance of covering their actual costs. Add to that the annual rate of inflation for medical expenses of 5% to 7% for health care expenses.”
This spin cycle of prices is likely to continue. And China isn’t the one-stop reason for the cheaper consumer goods.
CNNMoney points to better and increasingly automated supply-chain management. Mark Perry, an economist at the University of Michigan Flint School of Business, predicts that with 3D printing and other technologies, the quality of manufactured goods should continue rising as the prices drop.
Meanwhile, the need for services such as health care continues, CNNMoney says:
“What’s happened is the demand for these things has grown substantially as people got richer, said Douglas Irwin, an economics professor at Dartmouth College. But advances in productivity — the ability to churn out ever greater numbers for a cheaper price — hasn’t kept up.”
Studies like CNNMoney’s are interesting for investors, who want to track industries that can anticipate hefty increases in value their products. The information is vital for workers setting aside money for retirement.
Katherine Dean, national director of wealth planning for Wells Fargo Private Bank, tells USA Today:
“There needs to be a better acknowledgement that paying for health care in retirement is a pretty major issue and something they need to incorporate as part of their (financial) plan. The next step is to do an estimate as to what these costs will be and incorporate it into the plan.”
She suggests you consider the following: “how soon you want to retire, how long you can expect to live, your current health status, the cost of medical care in your area, whether you will receive any employer health benefits and inflation.”
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