In an era of overwhelming statistics, with numbers and data flying off the shelf, we have to address this information where it hits home, in our own personal lives. For individuals who are retired or considering the possibilities of retirement in the not too distant future, two bits of statistical data need to be evaluated as to their effect on our lives over time. These are the rates of inflation and the returns on investments. The statistics do not reveal how these two areas, inflation and returns, impact your life at a personal level.

We all remember the wild days of inflation in the late 1970’s and early 1980’s, with annual rates of inflation topping 12% a year. The impact on most of us was powerful for a limited period of time. However, due to the federal government’s monetary controls the official rate of inflation was brought down to an acceptable level by the middle 1980’s and has not been a factor in our national financial policies for some time. The official rates of inflation, as seen in the Department of Labor Statistics data to your right, has actually been extremely low over the last decade, with an average annual rate of inflation of 2.35% over the last ten years.

But, is this the whole story? Not exactly! In reality there are numerous ways of tracking inflation in the United States. Even the Consumer Price Index has multiple calculations, some of which do not include food, fuel and real estate. There is a concept known as ‘Individual Inflation’ which may vary greatly from geographical areas and from household to household. The actual impact of inflation is how it affects you in your daily and annual cost of living. For some, based upon their personal consumption habits, inflation may be very low, while for others it may be just the opposite. A good example would be the self-employed business owner whose spending habits are fairly normal with the exception of his individual medical insurance policy that has increased by almost 20% a year for the last ten years. Another example may be the retired couple who have traveled the U.S. in an RV for the last ten years. Their cost of gasoline and food alone may put them at a very high personal inflation rate.

We recommend that you take the time to evaluate your real cost of goods and services, and your personal spending habits and their changes on an annual basis. The reality for you may be that your personal rate of inflation is much higher than the national averages. If you find that your personal CPI is higher than the averages, you will need to determine how you will be able to maintain your standard of living for the future.

Personal Inflation Calculator –

http://myinflationrate.com/inflation_rate_calculator.php?accesscheck=%2Fselectindex.php

Gary Frey, ChFC, IAR is the owner of ABC Retirement Planning, Inc., which specializes in the ABC Model of Conservative Investing. www.abcretirementplanninginc.com. You may reach him at gfrey@abcplanninginc.com, or 800-707-0313.