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Explaining the concept of inflation to a military veteran...
Old 02-22-2008, 02:43 PM   #1
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Explaining the concept of inflation to a military veteran...

The umpteenth version of the inflation thread ("OMG the govt is diddling the inflation rate and making us all run out of money!!!") reminds me yet again how difficult it is to explain CPI to a Young Dreamer in one paragraph.

We ERs may choose (and some even have the background/inclination) to dig deeply into the most trivial abstruse consipiracies details of the subject, but most military veterans don't have the time or the interest and may even think that inflation involves an air pump.

Here's a sample of what I'm contending with from a submariner board:
Quote:
I'm at 17..and probably 6 out from retiring.....but I've got an opinion on why you can't and shouldn't really "retire."
We have a good pension in that it adjusts for relative inflation each year(about 3% per year, right??).
However, economic experts think the real inflation level is something like 10%. So, even if they are off slightly, its still higher then our yearly adjustment....so our purchasing power decreases every single year. So, say you retire are 42...and live to 82. Somewhere along those 40 retired years, you'll definitely be living worse then you should be....unless you have other investments to balance out with.
It's difficult to respond to this level of knowledge with a sentence like "Well, when the BLS makes their hedonic adjustments to CPI-U without accounting for the PPI or the ECI"...

It seems that the best I can do to explain this to (possibly uninformed) veterans is to quote Dimson & Marsh ("3% for the last century, 5% over the last three decades"), claim that the Fed prefers low inflation, and propose that Young Dreamers invest in a high-equity portfolio while they're still DCA'ing their paychecks. A personal inflation rate can be substantially different from the official number and people can decide on their own hedonic substitutions. Military retirees can at least hope that the pension's COLA will blunt the effects of inflation. TRICARE can help with runaway healthcare expenses.

Anything else that a veteran (or their families) would find comforting about military pay and its ability to contend with inflation? Any other explanations I could attempt?
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Old 02-22-2008, 07:47 PM   #2
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I guess you got it all. Just make sure that they understand the importance of accurately keeping track of what you spend. Im sure you are dealing with fairly smart people though. They probably got that part down.
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Old 02-23-2008, 12:55 AM   #3
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I don't see why they just do not save and invest a portion of their pension just as they would were they working to stay ahead of inflation.
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Old 02-23-2008, 01:00 AM   #4
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Pay more, get less.
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Old 02-23-2008, 03:58 AM   #5
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sometimes its pay the same and get less.

look how certain foods and candy bars have shrunk.

how about when they lay off civil service workers but you still pay the same taxes
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Old 02-23-2008, 05:43 AM   #6
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Originally Posted by mathjak107 View Post
sometimes its pay the same and get less.

look how certain foods and candy bars have shrunk.

how about when they lay off civil service workers but you still pay the same taxes
Good point.

There is also a case of pay more get none. taxes & gubbmit
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Old 02-23-2008, 07:31 AM   #7
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Quote:
Originally Posted by Nords View Post
The umpteenth version of the inflation thread ("OMG the govt is diddling the inflation rate and making us all run out of money!!!") reminds me yet again how difficult it is to explain CPI to a Young Dreamer in one paragraph.

We ERs may choose (and some even have the background/inclination) to dig deeply into the most trivial abstruse consipiracies details of the subject, but most military veterans don't have the time or the interest and may even think that inflation involves an air pump.

Here's a sample of what I'm contending with from a submariner board:
Quote:
I'm at 17..and probably 6 out from retiring.....but I've got an opinion on why you can't and shouldn't really "retire."
We have a good pension in that it adjusts for relative inflation each year(about 3% per year, right??).
However, economic experts think the real inflation level is something like 10%. So, even if they are off slightly, its still higher then our yearly adjustment....so our purchasing power decreases every single year. So, say you retire are 42...and live to 82. Somewhere along those 40 retired years, you'll definitely be living worse then you should be....unless you have other investments to balance out with.
It's difficult to respond to this level of knowledge with a sentence like "Well, when the BLS makes their hedonic adjustments to CPI-U without accounting for the PPI or the ECI"...

It seems that the best I can do to explain this to (possibly uninformed) veterans is to quote Dimson & Marsh ("3% for the last century, 5% over the last three decades"), claim that the Fed prefers low inflation, and propose that Young Dreamers invest in a high-equity portfolio while they're still DCA'ing their paychecks. A personal inflation rate can be substantially different from the official number and people can decide on their own hedonic substitutions. Military retirees can at least hope that the pension's COLA will blunt the effects of inflation. TRICARE can help with runaway healthcare expenses.

Anything else that a veteran (or their families) would find comforting about military pay and its ability to contend with inflation? Any other explanations I could attempt?
One of the kid's conclusions, that investments outside of his military pension could help the "problem", really is not such a bad idea. Even though his pension may keep up with inflation, more or less, additional investments could provide a little cushion that he apparently wants. I would just acknowledge his fears, provide examples of vets you have known that have done all right on pension alone, and then suggest that he might feel more comfortable if he saved up $1K to start a Vanguard STAR fund account to supplement his ER. Who knows? The guy may just have a consuming thirst to invest.

I think his risk tolerance is much, much lower than yours (or even mine, and I'm the world's biggest security junkie). In civil service, many of our CSRS retirees seem to do just fine on their pensions and inflation increases (though FERS like me don't get quite the full inflation adjustment). But other CSRS retirees do invest. Some invest due to desires for a better lifestyle, but others invest as a safety net to address any fears for the future.

He probably doesn't think he makes enough to invest. You might do a back-of-the-envelope computation of how much $100/week, or $100/mo would provide if invested and left untouched over a full 20-year career.
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Old 02-23-2008, 07:41 AM   #8
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Originally Posted by mathjak107 View Post
sometimes its pay the same and get less.

look how certain foods and candy bars have shrunk.

how about when they lay off civil service workers but you still pay the same taxes
How true. When I was a kid, a candy bar was almost twice the size of one today. And I can remember a 5 cent bar. Boy, I am old.
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Old 02-23-2008, 01:24 PM   #9
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Originally Posted by mathjak107 View Post
sometimes its pay the same and get less.

look how certain foods and candy bars have shrunk.

how about when they lay off civil service workers but you still pay the same taxes
have you checked out the new yogurt containers lately?

honey, i shrunk the acidobifillus (did i get that spelling right?)
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Old 02-23-2008, 01:29 PM   #10
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Originally Posted by mathjak107 View Post
sometimes its pay the same and get less.

look how certain foods and candy bars have shrunk.

how about when they lay off civil service workers but you still pay the same taxes
well, i can make you feel a little better. i was a govt civil servant, but i booked outta there early. my own personal contribution to our tax burden. (no offense meant or taken)

i just did my 2007 income taxes. and cried...I'm paying again. i worked 3 months of 2007 full time. next year will be better...wooohoooooo
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Old 02-23-2008, 01:31 PM   #11
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When I was a kid, a candy bar was almost twice the size of one today.
Well, you're twice a big now, so maybe it just looks smaller.
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Old 02-23-2008, 01:53 PM   #12
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Originally Posted by Want2retire View Post
One of the kid's conclusions, that investments outside of his military pension could help the "problem", really is not such a bad idea.
He probably doesn't think he makes enough to invest. You might do a back-of-the-envelope computation of how much $100/week, or $100/mo would provide if invested and left untouched over a full 20-year career.
Both good points-- one a solution but what seemed to him to be impossible to accomplish.

I've seen data that officers get paid approx $2M over a 20-year career. (Starting in the early 2000s. In my case, 1982-2002, it was $867K.) Comparing that to taking out a little every month to invest, and watching it compound, makes a great spreadsheet...
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