Cecily O'Connor
RedwoodAge.com

A new index will serve as an inflation barometer for boomers by helping to predict the actual costs they'll face in retirement.

The Rappaport Retirement Index is intended to show the "true cost-of-living adjustments" for the elderly of the future, said Craig Rappaport, author of "Live Long, Live Rich - Creating Your Retirement Paycheck." 

He created the index as an alternative to the Consumer Price Index-Urban, which includes expenditures for all urban consumers, and the CPI-Elderly, which tracks older Americans' spending. 

The problem with those indices is that they aren't forward-looking, which is a significant limitation in retirement planning, Rappaport said.

"Using current inflation data doesn't really help when you have to look forward to expenditures individuals will make in retirement," he said.

Rappaport based his index on information gathered from the Bureau of Labor Statistics, including monthly CPI-E data, as well as a "more direct breakdown" of those numbers that he screens on a year-over-year and month-over-month basis. 

"We take that (data) and assign a higher weighting above and beyond what the (bureau) already has," said Rappaport, who's been tracking the numbers since late 2006. 

That's because the expenditure weighting for this subset is higher in certain areas, such as healthcare. The elderly index isn't adjusted for that, according to Rappaport.

Different Strokes
To be sure, indices, in general, are sometimes viewed as controversial because the data could be overstated or understated. So planning for future costs is one of many important factors boomers should consider in developing their retirement plan. 

Costs vary with individuals. For example, people who live near stores and family may use less gasoline because they drive less. Or people who grow their own organic produce may spend less at the store.

Boomers would be wise to discuss their own situation with a financial planner to make sure they are on track to achieve financial goals.

That said, the most recent RRI data shows a year-over-year increase of 4.47 percent at the end of November.

"That means we're expecting inflation for retirees to rise at a rate of 4.5 percent in the real world, and that includes food and energy," Rappaport said. "Using our number has no downside other than people might feel the need to save some more."