From an article by Mark Miller
Despite the current high-inflation environment, there’s little reason to dramatically change the long-term assumptions about inflation that drive your retirement plan.
JPMorgan notes that annual inflation averaged 2.7% from 1982 to 2020, and then it ran at a 7.1% pace in 2021. It’s quite possible that figure will be even higher this year. For example, the Senior Citizens League forecasts that this year’s COLA could be 8.6% if current inflation trends persist for the rest of the year.
But the biggest spikes last year were in just two categories, JPMorgan notes:
- Transportation cost increases averaged 2% from 1982 to 2020 but jumped 21.4% in 2021.
- Food and beverage costs jumped from a 2.7% long-term rate to 6.0% last year.
Those trends are not likely to persist over the long haul. Indeed, JPMorgan suggests sticking with a moderate inflation assumption of 2%-3% for your overall plan—but make a separate set of assumptions for healthcare and long-term care.
“It makes sense to plan for healthcare costs at 5.5% or 6%,” Carson says. “Medicare costs are rising more quickly, and you do need to plan for long-term care. But the rest of your expenses may not grow that quickly.”
Mark Miller is a journalist and author who writes about trends in retirement and aging. He is a columnist for Reuters and also contributes to The New York Times and WealthManagement.com. He publishes a weekly newsletter on news and trends in the field at RetirementRevised. The views expressed in this column do not necessarily reflect the views of Morningstar.
This is good advice imo. For those of us who need to add our healthcare expenses to the Misc. Expense section with start and end dates, we must remember that the health care inflation rate we established on the Home page is ignored for these expenses and only the general inflation rate is used. Stuart will fix this in 2024 so the Healthcare page is more friendly.
