A recent column, "Life is less expensive for older couples," brought a divided reader response.

Carl J., a Houston reader, wrote: "It is the first time that I have seen something resembling the truth about retirement. I don't know where these people are coming from--- the ones who give outrageous percentages of working income needed in retirement." Carl, and others, went on to describe how they get along happily on much less income than they had in their working years.

Others were equally convinced that my figures---showing that it was possible to live on as little as half of one's pre-retirement income---were dead wrong. "Grumpy Jay," a Plano reader, wrote: "Thanks for the encouragement, but you forgot something. The Olds will have property taxes and insurance on their paid-for home. No small matter in Texas."

In fact, virtually every state has remedies of some sort for rising real estate taxes. According to the website www.retirementliving.com, for instance, 31 states have "circuit breaker" laws that protect retirees from real estate taxes that take too much of their income. Other states allow retirees to defer some portion of their taxes until the property is sold. So if you are retired and your real estate taxes are rising at double digit rates, some research may provide relief.

Far more readers were like Tom M. --- concerned about health care. "Even assuming the Olds are on Medicare, premiums for Medicare, Medigap, and prescription coverage could easily exceed the Youngs' cost of health insurance."

Health care is the elephant in the room for all of us, regardless of age. Ironically, retirees may be better able to accommodate rising health care costs than younger people. Here's why.

A 1999 study of retiree spending found three interesting facts.
  • Total consumption spending began to decline when people were in their late 50s. The decline accelerated when they were in their late 60s.
  • Health care spending rose during the same period--- but it was more than offset by declines in spending on food, housing, clothing, transportation, and entertainment.
  • Declines in spending weren't forced by lack of means. The research showed that retiree net worth rose during the period.
The big question: Will the accelerating rise in retiree health care costs overwhelm the natural decline of spending in other areas?

Recent evidence isn't encouraging.

The Medicare Part B monthly premium increased $10.30 a month to $88.50 this year. The premium has doubled since 1998 when it was $43.80. That's a compound annual increase of 9 percent. Since its introduction in 1967, at $3 a month, the premium has grown at a compound annual rate of 9 percent. I'd call that a 39-year trend, something you don't change very easily.

In spite of this, the 2006 Medicare Trustees report projects that the monthly premium will grow to only $122.40 by 2015. That's an annual growth rate of only 3.67 percent. One can only wonder what the Trustees are smoking.

The same report projects that the prescription drug benefit premium will increase from $32.20 to $59.88 over the same period, an annual growth rate of 7.14 percent.

If we go by history, the trend is 9 percent---and that's before the big boomer rush. Readers who would like to experiment with how health care inflation will affect the purchasing power of their Social Security benefits can visit my website, www.scottburns.com, and go to the "Medicare vs. Social Security calculator." (The website is free but requires registration.) It will calculate the year-by-year impact of Medicare premiums on your Social Security benefits over the next 25 years. You can choose any Medicare inflation rate and any benefits inflation rate.

The average retiree monthly benefit in April of this year, according to the Social Security website (www.ssa.gov), was $1,006.20. Assuming a 9 percent annual increase in the monthly premium for Part B and a 3 percent annual retirement benefit increase to match a 3 percent inflation rate, a new retiree will lose 10 percent of his purchasing power in 12 years. She will lose 20 percent of her purchasing power in 20 years.

Getting old isn't for sissies.

On the web:

Medicare Premiums vs. Social Security Benefits Calculator

Sunday, May 21, 2006: Life is less expensive for older couples

Sunday, July 17, 2005: Ty Bernicke and Reality Financial Planning

Sunday, April 5, 1999: In the future, you'll need less money

Sunday, August 21, 2005: There's a high cost of living as a family