How do you inflation proof your retirement?

”During my years as teacher and professor”

Retired Karen very likely has a pension, possibly with a COLA and probably with retiree medical benefits too. That’s pretty typical in academia.

These type of stories often leave out a few relevant details. What’s the point of retiring to live like that?

Just an FYI, it is nearly impossible to keep up with health care premium inflation.

Pure medical-care price inflation is currently low (~1.6–3%), but premium inflation is substantially higher (typically 6–15%+ depending on the market and driven by utilization, high-cost drugs/treatments, and provider pricing power. Exact rates vary significantly by plan type, state, and whether the coverage is employer based.

That’s we distinguished between inflation and trend.

For example, Federal employee (including Congress) are facing a 10.9% increase next year.

A health plan sets prices before all the years data is in and must set premiums to cover anticipated spending basically from July one year to December the following year. If they guess wrong, the following years premiums must play catchup to cover the loss. That can generate what appears to be an excessive increase but is not really.

One catastrophic claim in a group can cause a premium shock in one year. I had that happen back in 1990 or so when the 14 year old son of an employee incurred over a $1 million dollars in bills. We were self-insured so the group picked up the cost in the premiums we set for employees.

Keeping up with Part B, Part D and Medigap premiums with the SS COLA alone is quite difficult and very regressive because except for IRMAA, premiums are not income sensitive.

Fortunately for lower income retirees, there is a hold harmless provision in SS so they may not gain income from the COLA, but they won’t lose any either. Guess what, retirees who pay IRMAA premiums make up the lost revenue for Medicare when that happens by paying extra.

I’ve said it (too) many times. Retire with a solid cushion between total spending needs and anticipated or planned income.

And you set up an income generating fund, account, investment group, whatever you want to call it, that is designed to kick off interest and or dividends which are reinvested until or as is needed for the purpose of offsetting inflation.

That fund may simply be notational. In our case I know in my mind that our two stocks and few bond funds are for that purpose. Most of the income generated is still reinvested, but now some is reinvested only in a money market fund for possible use. All those funds are in a brokerage account.

The thing that works for me is compartmentalization of funds and once we have that mindset it falls into place and stays there. I let the banks and brokerage firm do the hard work of keeping tabs on what’s where and how we use it.

I know, not for everyone. Just explaining, not selling.