May 28, 2008

The dangers of boomer inflation

Regular readers know I often look to Brett Arends for cool-headed logic, and the Wall Street Journal columnist once again doesn't disappoint. I've worried for some time about the disproportionate affects of inflation on the older population - but not in the way you might think. Since Arends always seems to say it better than I, I was elated to see his piece on the topic this week. As he wisely notes, yes, prices have fallen in certain sectors of the economy, which is good news. But these sectors almost always affect younger consumers (think iPods and other hip gadgets). As for older consumers, Arends has this to say:

"The Baby Boomer generation is heading into retirement. And inflation for older Americans is considerably higher than it is for the rest of the population (...) Meanwhile, according to BLS data, the cost of food in the supermarket is rising by 5.7 percent a year. Home energy is up 5.5 percent. Gasoline is up 34 percent. It costs 8.9 percent more to fly than it did a year ago. Medical services are rising by 5.7 percent a year, hospital services by 8.5 percent, home health-care and nursing-home fees by 4.5 percent. Funerals are up 4.8 percent. Falling house prices, while deflationary, actually hurt seniors as well. Many of those heading into retirement are, effectively, net sellers of real estate."

Boomer advisors beware. It's a topic that must be raised at your next client meeting.

Read the whole thing online at www.wsj.com.

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