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Re: cost of living increase question
Old 06-01-2005, 12:26 PM   #21
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Re: cost of living increase question

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Originally Posted by MRGALT2U
we can cut back and downsize continuously
I'm unaware of programs for people with assets where they give you food and shelter, or pay you to give you food and shelter.

Please advise.

(in other words, there is a limit to 'continuous' and based on what you claim you live well on, you're not too far from the bottom of the limit).
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Re: cost of living increase question
Old 06-01-2005, 01:35 PM   #22
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Re: cost of living increase question

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Originally Posted by Michael
I find it interesting that if the CPI were calculated the way it was in the 1980s, it would be about 3% higher than it is today.



They rang the alarm and fought inflation at 6% during the 80s, when they could have just solved the problem by changing the way inflation was calculated, like they do today. Progress.
Michael,
Wow, if this graph means what it seems to mean, then none of us is on firm ground as our entire expected portfolio earnings more or less need to be retained just to keep up with inflation, and there is only a percent or two left over for withdrawals

Was the CPI pre-clinton a real measure of inflation? Or was it wrong, too, on the high end? Any background on what the key changes were that cut the rate in half?
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Re: cost of living increase question
Old 06-01-2005, 01:59 PM   #23
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Re: cost of living increase question

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Was the CPI pre-clinton a real measure of inflation?
Intercst reported that his real life retiree inflation was higher than the current CPI, and closer to the old calculated rate. Draw your own conclusions.

Quote:
Overall, my spending has increased by about 60% from 1994-2004. The CPI only increased by 25% over that period.
http://www.retireearlyhomepage.com/c...98;start=17#17
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Re: cost of living increase question
Old 06-01-2005, 02:24 PM   #24
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Re: cost of living increase question

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Any background on what the key changes were that cut the rate in half?
They decided that price increases were not really price increases.* The justification was that items bought had improved.* IOW, you paid more to live, but you got better quality stuff for your money, so this cancelled out the price increases.

If you want to wade through the technical details, you can start here:

http://www.bls.gov/cpi/home.htm

http://www.ssa.gov/history/reports/boskinrpt.html#exec
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Re: cost of living increase question
Old 06-01-2005, 03:04 PM   #25
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Re: cost of living increase question

That change included a lot of alterations that were supposed to make cpi more realistic.

I think it was simply a case of "well, nothing else we can do will reduce this measurement to something that will look good to people, so lets change the measurement".

As SG points out, its going to be different for everybody and very dependent on where you live and what your lifestyle is.

If you want to know for sure, prarie dog it...ask someone who has been on social security or a CPI cola'd pension for at least 10 years if their money still buys as much and if not, how much less it buys. Bet their answer is within 10-15% of accurate for the difference in your area between cpi and real local inflation.
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Re: cost of living increase question
Old 06-01-2005, 03:20 PM   #26
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Re: cost of living increase question

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...if their money still buys as much and if not, how much less it buys.
Sure they can buy less food now, but the food is of so much higher quality that they only need to eat once a week to get the same quality that eating 7 days a week used to give them.
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Re: cost of living increase question
Old 06-01-2005, 03:25 PM   #27
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Re: cost of living increase question

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Originally Posted by Michael
Sure they can buy less food now, but the food is of so much higher quality that they only need to eat once a week to get the same quality that eating 7 days a week used to give them.
Am I the only one near a McDonalds that sells double cheeseburgers for $0.99? I can raise my LDL much cheaper than I could pre-burger-wars.
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Re: cost of living increase question
Old 06-01-2005, 03:32 PM   #28
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Re: cost of living increase question

Thats pretty much a national thing.

Here's a burger king oddity for you though, at least at the handful I've noted this phenomenon:

A double cheeseburger (one bun, two meat patties, two pieces of cheese, condiments): 99c
Two cheeseburgers (two buns, two meat patties, two pieces of cheese, two condiments): 98c

Oh yeah, and two wrappers for the latter...
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Re: cost of living increase question
Old 06-01-2005, 04:36 PM   #29
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Re: cost of living increase question

If I ever reach the point where the above menu becomes a serious consideration, I'll know I ER'ed too soon!
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Re: cost of living increase question
Old 06-01-2005, 05:58 PM   #30
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Re: cost of living increase question

Indeed. I spent my afternoon yapping at all y'all while enjoying a nice breeze on the back patio...what did you do all day Laurence?
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Re: cost of living increase question
Old 06-01-2005, 06:06 PM   #31
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Re: cost of living increase question

If one buys unprocessed foods, like beans, rice, potatoes, and such, and cooks creatively, you can eat well for cheap. Sure beats a Big Mac (which, by the way, rhymes with heart attack)

Of course, it's not filet mignon and chardonnay...........
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Re: cost of living increase question
Old 06-01-2005, 06:15 PM   #32
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Re: cost of living increase question

I do a LOT of shopping in the bulk bin section of the local winco market. Unbelievably cheap compared to buying even the same products in boxes or bags. Sea salt for 15c a lb. Oatmeal at 9c a lb. Whole wheat pasta was 65c a lb yesterday.
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Re: cost of living increase question
Old 06-01-2005, 07:12 PM   #33
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Re: cost of living increase question

Quote:
Originally Posted by Michael
I put all numbers to 0 except for medical, and it turned in a 4% inflation rate for medical care. This is completely unrealistic.
The increase in price of drug itself is an average of 7.4%.
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Re: cost of living increase question
Old 06-01-2005, 07:14 PM   #34
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Re: cost of living increase question

Quote:
Originally Posted by th
Indeed. I spent my afternoon yapping at all y'all while enjoying a nice breeze on the back patio...what did you do all day Laurence?
Sweating bullets and groaning in pain (home sick again!) thanks for asking!
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Re: cost of living increase question
Old 06-02-2005, 05:28 AM   #35
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Re: cost of living increase question

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The increase in price of drug itself is an average of 7.4%.
This brings out the true nature of the CPI. Medical inflation is listed at 4%, while retirees are paying 10% per year more for their medical insurance. The government knows that people are paying 10% more, but subtract 6% of that increase as "improvements" in medicine. As a retiree, you will need to budget 10% more per year for meds.

The CPI is therefore increases in the cost of living minus some bureaucrat's guess on how much medicine has improved. It cannot be used to estimate costs, since a retiree has to pay the full 10% increase in medical insurance regardless of whether or not medicine improves.

To estimate real life costs, you have to add back in the "improvement" factor that the bureaucrats subtracted. This leads approximately to the pre Boskin commision CPI number used in the past, as shown on the chart I posted.
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Re: cost of living increase question
Old 06-02-2005, 12:12 PM   #36
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Re: cost of living increase question

I am allowing for a 11% increase in my annual medical related expenses. I feel much more financially secure with my extra 1% annual fudge factor.
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Re: cost of living increase question
Old 06-02-2005, 01:54 PM   #37
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Re: cost of living increase question

Do I have this right? If you had yearly healthcare expenses right now of $12,000, at 11% inflation, this would mean a yearly expense of over $700,000 in year 40. Tough to plan for that kind of inflation. To see how much money you need now, and assuming growth of your money at 5% but inflation at 11%:

Compounding Yield Calculator Results
Required Income (Current Dollars): $12,000.00
Required Income (Future Dollars): $12,000.00
Number of Years After Retiring: 40
Annual Inflation (on Required Income): 11.00%
Annual Yield on Balance: 5.00%

You will need $1,728,949.43 Invested today

Year Beg Bal Withdraw Interest End Bal
1 1,728,949.43 12,000.00 85,847.47 1,802,796.91
2 1,802,796.91 13,320.00 89,473.85 1,878,950.75
3 1,878,950.75 14,785.20 93,208.28 1,957,373.83
4 1,957,373.83 16,411.57 97,048.11 2,038,010.37
5 2,038,010.37 18,216.84 100,989.68 2,120,783.20
6 2,120,783.20 20,220.70 105,028.13 2,205,590.63
7 2,205,590.63 22,444.97 109,157.28 2,292,302.94
8 2,292,302.94 24,913.92 113,369.45 2,380,758.47
9 2,380,758.47 27,654.45 117,655.20 2,470,759.21
10 2,470,759.21 30,696.44 122,003.14 2,562,065.91
11 2,562,065.91 34,073.05 126,399.64 2,654,392.50
12 2,654,392.50 37,821.09 130,828.57 2,747,399.98
13 2,747,399.98 41,981.41 135,270.93 2,840,689.50
14 2,840,689.50 46,599.36 139,704.51 2,933,794.65
15 2,933,794.65 51,725.29 144,103.47 3,026,172.83
16 3,026,172.83 57,415.07 148,437.89 3,117,195.64
17 3,117,195.64 63,730.73 152,673.25 3,206,138.15
18 3,206,138.15 70,741.11 156,769.85 3,292,166.89
19 3,292,166.89 78,522.63 160,682.21 3,374,326.47
20 3,374,326.47 87,160.12 164,358.32 3,451,524.66
21 3,451,524.66 96,747.74 167,738.85 3,522,515.77
22 3,522,515.77 107,389.99 170,756.29 3,585,882.07
23 3,585,882.07 119,202.89 173,333.96 3,640,013.14
24 3,640,013.14 132,315.21 175,384.90 3,683,082.83
25 3,683,082.83 146,869.88 176,810.65 3,713,023.60
26 3,713,023.60 163,025.57 177,499.90 3,727,497.94
27 3,727,497.94 180,958.38 177,326.98 3,723,866.54
28 3,723,866.54 200,863.80 176,150.14 3,699,152.87
29 3,699,152.87 222,958.82 173,809.70 3,650,003.76
30 3,650,003.76 247,484.29 170,125.97 3,572,645.45
31 3,572,645.45 274,707.56 164,896.89 3,462,834.78
32 3,462,834.78 304,925.39 157,895.47 3,315,804.86
33 3,315,804.86 338,467.18 148,866.88 3,126,204.56
34 3,126,204.56 375,698.57 137,525.30 2,888,031.29
35 2,888,031.29 417,025.42 123,550.29 2,594,556.16
36 2,594,556.16 462,898.21 106,582.90 2,238,240.85
37 2,238,240.85 513,817.02 86,221.19 1,810,645.02
38 1,810,645.02 570,336.89 62,015.41 1,302,323.54
39 1,302,323.54 633,073.95 33,462.48 702,712.08
40 702,712.08 702,712.08 -0.00 -0.00
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Re: cost of living increase question
Old 06-02-2005, 03:19 PM   #38
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Re: cost of living increase question

It'll go like the housing stuff does. It'll keep getting more expensive for the same coverage, people will slim the coverage until we're all on disaster plans with high deductibles. Nobody will pay for anything preventative. The average persons health will get lousy. Nobody in the medical industry will be able to make enough money. Competition will drive prices down, or the govvinmint will step in and federalize healthcare.

Thats pretty much the way I was going. I started off in ER with an HMO with a $10 copay for $150. Next year it was $200 with a $20 copay. Then it went to $250 with a $25 copay, but they dropped in an option for $170 with a $50 co-pay and no prescription drug coverage, so I took that. Then jumped on the wifes group plan after we got married.

I could see where that was going though...I had already been looking at cheap bc/bs high deductible plans with no prescription drug coverage in the $120-140 range.
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Re: cost of living increase question
Old 06-02-2005, 04:25 PM   #39
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Re: cost of living increase question

The withdrawal numbers are correct Martha. No one knows whether the rate will keep going up like that for the full 40 years, but my wild guess would be that we can count on at least another 5 to 10 years. However, when you reach 65, you may only need to buy a much less expensive Medicare supplement policy. That is, unless Medicare has been "privatized" by then.
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Re: cost of living increase question
Old 06-02-2005, 08:15 PM   #40
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Re: cost of living increase question

Quote:
Originally Posted by Martha
Do I have this right? If you had yearly healthcare expenses right now of $12,000, at 11% inflation, this would mean a yearly expense of over $700,000 in year 40. Tough to plan for that kind of inflation. To see how much money you need now, and assuming growth of your money at 5% but inflation at 11%:
Hi Martha,
Since I'm single and 57, my health insurance after my Cobra expires in 21 months will be closer to $8750 (future dollars) in NYS. NYS does not offer any high deductable insurance so I will probably move to NM or AZ where health insurance with $2000 deductable will cost under $3k. My plan will assume that Medicare with supplemental will be available (I hope). Based on my 11% inflation increase my annual Medicare health insurance in 38 years will be $165k.

Since I am in excellent health so far (knock on wood) I hope my overall medical expenses will remain at a minimum for many years to come.
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