Say you’re on a high – monetarily speaking. You’ve settled into a middle-class lifestyle and are reaping the benefits: a nicer home, financial security, and a growing nest account.
Experts predict that inflation will make certain items unaffordable within the next five years.
“I’ve seen how the middle class currently enjoys some important aspects of life,” said Alyssa Huff, real estate specialist and owner of Sell House As Is. “Like owning homes with manageable mortgages, sending their kids to college with the help of student loans, having healthcare coverage, saving for retirement, and even indulging in occasional luxuries.”
However, looking ahead, she expressed concern about the future: “Rising housing costs, tuition fees, healthcare expenses, and inflation could make life tougher for middle-class families in the next five years.”
Huff predicted that it may become more difficult to afford a home, send children to college, or save for retirement.Even simple joys like vacations or buying lovely items may become increasingly difficult.
What is the good news? Knowing that increased expenditures are inevitable can help you plan ahead of time.
“As someone who cares deeply about financial well-being,” Huff went on to say, “I urge the middle class to start planning wisely now to weather these potential storms and keep their dreams within reach.”
Here are some rising prices that you should be aware of.
1. Extended Family Trips
“I would say the tradition of extended family trips, especially overseas, will probably increasingly be something the middle class can’t afford in the coming years,” said David Kemmerer, founder and CEO of CoinLedger “In lots of ways I already feel like the traditional family vacation has fallen to the wayside over the last decade due to a number of factors — Covid and inflation being some of them.”
However, with middle-class income not going as far as it once did, he predicts that money that could have been spent on travels will now be spent on housing and other essentials.
2. New Cars
According to Melanie Musson, a finance specialist at Clearsurance, the middle class would struggle to afford new cars in the near future.
“Vehicle prices have increased dramatically in the past four years and will likely continue to become more expensive,” he said. “Safety features, autonomous technology and EV batteries contribute to the rising prices.”
3. Private School Tuition
Jake Hill, CEO of DebtHammer, predicts that if inflation and strong demand continue, the middle class would be unable to afford private school tuition over the next five years.
“Tuition rates have been steadily climbing for years,” he added, “and it’s highly likely they’ll outpace a middle-class income in the near future.”
He stated that this is especially true when considering the total cost of living for a middle-class family, including growing housing costs.
4. Homeownership and Real Estate
According to Carter Seuthe, CEO of Credit Summit, the middle class may struggle to afford a mortgage or home purchase in the next five years.
He stated that it is still difficult to have an offer approved on a home, particularly in high-demand areas of the country, unless you are bidding considerably over the asking price, waiving essential elements of the inspection and sale, offering in cash, and so on.
He went on to say, “I can certainly see owning a home becoming something that’s more and more out of reach for your average middle-class citizen.”
David Brillant, a tax, trust, and estate lawyer at Brillant Law Firm in California, recommends keeping a tight eye on real estate when owning properties.
“With recent adjustments in property tax laws, such as those prompted by Proposition 19 [in California], and potential changes to the unified credit against estate and gift taxes,” he said, “there’s a real concern that owning and passing down real property will become increasingly difficult for the middle class.”
“My work with clients on navigating these tax changes has underscored how significant the financial burden can be, especially with the proposed reduction in the unified credit, making substantial gifts now more attractive in the near future.”
5. Healthcare Costs
Experts also recommend keeping an eye on long-term care and healthcare costs.
According to Mike Kojonen, financial counselor and proprietor of Principal Preservation Services, expenses have been gradually growing and surpassing overall inflation rates for years, with little signs of stopping.
He stated that many middle-class families may be unprepared for the financial burden of long-term care, whether for themselves or their elderly parents.
“My work with clients has underlined the importance of integrating healthcare planning into a comprehensive retirement strategy,” he added. “Without proper planning, the affordability of necessary long-term care services could become a significant challenge, potentially depleting retirement savings prematurely.”
6. Leisure and Travel in Retirement
For individuals planning to retire within the next five years, Kojonen recommends considering leisure and travel in retirement.
“For many, the desire to explore and enjoy leisurely pursuits forms a central part of their retirement dream.”
However, with rising expenses and inflationary pressures affecting everything from travel to lodging and food, he believes what was once considered a feasible objective for the middle class will soon become a luxury.
“This shift could lead to necessary adjustments in retirement planning, emphasizing the need to build a more robust savings strategy to accommodate higher costs of leisure and travel.”
7. ‘Safe’ Investments for Retirees
According to Kojonen, the definition of “safe” investments may also shift.
“Traditionally,” he went on to say, “bonds and fixed income have been seen as cornerstones of a retiree’s portfolio, providing both income and stability.”
However, with interest rates at record lows and inflation on the rise, he believes the real returns on these investments will not keep up with inflation.
“This reality poses a risk to the preservation of purchasing power for many middle-class retirees,” he went on to say. “In advising clients, it’s become increasingly important to explore diversified investment strategies that can offer both growth and protection against inflation, ensuring their retirement savings can support their lifestyle and goals.”