Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
FI Inflation Solution
Old 05-23-2006, 11:55 AM   #1
Recycles dryer sheets
 
Join Date: Sep 2004
Posts: 330
FI Inflation Solution

As a inflation hedge , could one just work enough to equal the inflation rate for the 1st 5-7 years of FI. For example, if your annual withdrawl is 48k and inflation rate is 5%, that equals $2400 or $200 per month to be earned. ASSUMING, you don't earn minimum wage would this approach not have a mitigating affect on worrying about the inflationary effect on your portfolio especially during the early withdrawl years AND the taxes on the $200/month would be miniscule.

I bring this up because I read on this board and other sites about the huge concern with the cost of living/inflation and how it can put a dent in the best laid ER plans.

This or some modification might be one solution.
__________________

__________________
ferco is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Re: FI Inflation Solution
Old 05-23-2006, 12:19 PM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
brewer12345's Avatar
 
Join Date: Mar 2003
Posts: 16,391
Re: FI Inflation Solution

__________________

__________________
"There are three kinds of men. The one that learns by reading. The few who learn by observation. The rest have to pee on the electric fence for themselves."



- Will Rogers
brewer12345 is offline   Reply With Quote
Re: FI Inflation Solution
Old 05-23-2006, 12:27 PM   #3
Thinks s/he gets paid by the post
SteveR's Avatar
 
Join Date: Jul 2005
Posts: 2,803
Re: FI Inflation Solution

Quote:
Originally Posted by ferco
As a inflation hedge , could one just work enough to equal the inflation rate for the 1st 5-7 years of FI. For example, if your annual withdrawl is 48k and inflation rate is 5%, that equals $2400 or $200 per month to be earned. ASSUMING, you don't earn minimum wage would this approach not have a mitigating affect on worrying about the inflationary effect on your portfolio especially during the early withdrawl years AND the taxes on the $200/month would be miniscule.

I bring this up because I read on this board and other sites about the huge concern with the cost of living/inflation and how it can put a dent in the best laid ER plans.

This or some modification might be one solution.*
What would one do after the first 5-7 years to protect the nest egg from the wide swings in inflation that can happen over the 30+ years one may spend in retirement? I am not sure where you are going with this other than to think out loud about working part time for a few years to earn enough money to cover all your future inflation so you won't worry about your nest egg being reduced by inflation over the rest of your life.

I you could forcast the exact amount of inflation over the rest of your life I guess you could earn enough on top of your nest egg to account for it as long as you were accurate in your assessment of future inflation. Otherwise, you are just working to make a larger nest egg....which is like having a job while being retired. Or am I missing something?
__________________
Work? I don't have time to work....I'm retired.
SteveR is offline   Reply With Quote
Re: FI Inflation Solution
Old 05-23-2006, 12:30 PM   #4
Thinks s/he gets paid by the post
 
Join Date: Jan 2006
Posts: 1,012
Re: FI Inflation Solution

Quote:
Originally Posted by ferco
As a inflation hedge , could one just work enough to equal the inflation rate for the 1st 5-7 years of FI. For example, if your annual withdrawl is 48k and inflation rate is 5%, that equals $2400 or $200 per month to be earned. ASSUMING, you don't earn minimum wage would this approach not have a mitigating affect on worrying about the inflationary effect on your portfolio especially during the early withdrawl years AND the taxes on the $200/month would be miniscule.

I bring this up because I read on this board and other sites about the huge concern with the cost of living/inflation and how it can put a dent in the best laid ER plans.

This or some modification might be one solution.*
And the second with 5% inflation you work enough for the $2400 of the first year's inflation and $2400+$120 for the second year's inflation totaling $4920 the second year? *And this continues for 3-5 more years? *Sounds like you will be working FT in no time.
__________________
jdw_fire is offline   Reply With Quote
Re: FI Inflation Solution
Old 05-23-2006, 03:25 PM   #5
Recycles dryer sheets
 
Join Date: Sep 2004
Posts: 330
Re: FI Inflation Solution

My concern was the first 5 years since this seems to be the most critical period for ER's regarding their withdrawals. I gave the inflation rate as 5% as a hedge since most sites quote 3% as the traditional number.
To me, the $200-250 per month over 5 years to safeguard the nest egg would be a drop in the bucket and could easily be accomplished with 1/2 - 1 day of "work" per month.....a VERY small price to pay for piece of mind.
__________________
ferco is offline   Reply With Quote
Re: FI Inflation Solution
Old 05-23-2006, 03:33 PM   #6
Thinks s/he gets paid by the post
 
Join Date: Apr 2006
Posts: 1,487
Re: FI Inflation Solution

why not just continue full time for another 30-60 days?
__________________
d is offline   Reply With Quote
Re: FI Inflation Solution
Old 05-23-2006, 03:38 PM   #7
Thinks s/he gets paid by the post
 
Join Date: Jan 2006
Posts: 1,012
Re: FI Inflation Solution

Quote:
Originally Posted by jdw_fire
And the second with 5% inflation you work enough for the $2400 of the first year's inflation and $2400+$120 for the second year's inflation totaling $4920 the second year? *And this continues for 3-5 more years? *Sounds like you will be working FT in no time.
I guess my not carrying out the math made my point obscure. *So:

year 1 requires $2400.00 additional that year to cover the 5% inflation
year 2 requires $4920.00 additional that year to cover the 5% inflation
year 3 requires $7566.00 additional that year to cover the 5% inflation
year 4 requires $10,344.30 additional that year to cover the 5% inflation
year 5 requires $13,261.52 additional that year to cover the 5% inflation
year 6 requires $16,324.59 additional that year to cover the 5% inflation
year 7 requires $19,540.82 additional that year to cover the 5% inflation

And now what do you do? If you go back to the $48,000/yr level you just cut you standard of living by 1/3.
__________________
jdw_fire is offline   Reply With Quote
Re: FI Inflation Solution
Old 05-23-2006, 03:46 PM   #8
Thinks s/he gets paid by the post
SteveR's Avatar
 
Join Date: Jul 2005
Posts: 2,803
Re: FI Inflation Solution

Quote:
Originally Posted by d
why not just continue full time for another 30-60 days?
Makes more sense to me unless you just "need" to work. Some people do...others never want to collect another paycheck because of what it takes to have one. It is all what works best for you. If you want a job, even part time, for the next several years and you are OK with that then go for it. Otherwise, either invest more aggressively or work longer to make up for the inflation impact if you are running that close to the edge.
__________________

__________________
Work? I don't have time to work....I'm retired.
SteveR is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Inflation and market performance Rich_by_the_Bay FIRECalc support 6 07-08-2006 06:56 AM
Panama Inflation Arif FIRE and Money 7 04-19-2006 08:39 AM
Go with TIPs or am I crazy? Mister Bill FIRE and Money 147 06-14-2005 10:25 AM
Inflation and CPI sgeeeee FIRE and Money 6 01-21-2005 08:18 PM
Retiree Inflation Rate? mccl FIRE and Money 4 05-13-2004 08:51 AM

 

 
All times are GMT -6. The time now is 05:07 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.