Thursday, October 27, 2011

MEDICARE and INFLATION - income investors pay attention!

They taketh and they giveth.   

           Is there any more telling proof that inflation affects income investors than the announcement that social security payments will increase and so will the amount you pay the government for Part B Medicare costs?  If you are not yet old enough to know about Medicare, you may be surprised to learn that part of your social security income is used to pay for your Part B medical costs.  If you are old enough to be on Medicare, you already know that the amount your pay for Part B medical costs increases pretty regularly.   

           Here is how it works.     Social security income increases when the government decides that our cost of living has increased.  They do not include housing, food or energy costs.  So you know that when they do finally decide it costs us more to live, they are not kidding.   When social security income increases, the government has the option to also increase the payment we make to the government for Part B Medicare coverage.  If social security does not increase, the cost of Part B cannot increase.  This rule is a law.  In 2012 social security will increase by about 3.6 percent and our payment for Part B Medicare will also increase about 3.6 percent.

           This is inflation.   To put this in perspective, think back 25 years to 1986 and you will remember that the average cost of a new house was around $89,000; average cost of a new car around $9,400; a gallon of regular gas was $.93 and a dozen eggs was less than a dollar.   The point being for everyone who depends wholly or partially on income from investments and who knows that you should plan to live into your 90’s,  your income has to steadily increase.  In 25 years from now what will it cost to insure your house, pay for groceries, pay your home maintenance, and pay your gas and electric bill?

           Remember the principles of good income investing.  Always invest in something that makes money, and that delivers some of that income to you.  In this blog I concentrate on companies that pay an ever increasing dividend.  You should consider this strategy for a portion of your income investments.  I do not cover real estate investing in this blog, but I have used bond interest income as a significant source of income for income investors.  Lately, bonds have been too expensive.  That may change and it can change quickly.  

           Evaluate your income investments and determine if the income they create is keeping up with inflation.  Read this blog for dividend machines, (one every Monday) and periodic opinions on other income ideas like bonds and covered calls.  

Very Truly Yours,

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