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Old 08-05-2013, 11:43 AM   #21
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Originally Posted by wishin&hopin View Post
Similar thread from about a year ago...

Inflation, shminflation
Thanks for the link, I missed that one.

Thank you all for sharing your results - this is really interesting stuff. I wonder, has anyone modeled a retirement withdrawal strategy based on the assumption that spending levels would remain consistent for the first 10-15 years. It would seem this could make a HUGE difference on the total portfolio amount needed for retirement.
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Old 08-05-2013, 01:52 PM   #22
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Originally Posted by intent View Post
... I wonder, has anyone modeled a retirement withdrawal strategy based on the assumption that spending levels would remain consistent for the first 10-15 years. It would seem this could make a HUGE difference on the total portfolio amount needed for retirement.
Here's a shot at it in FIRECalc:

FIRECalc: A different kind of retirement calculator

I set spend on the first tab to zero - Port$ to $1M for ez math.

Then in "other income/spend" tab, I set $40,000 spend, no inflation, start year 2013, then negate that with a $40,000 income, no infl, start year 2022, then add $40,000 spend in 2022 WITH inflation adjustment.

This is close, but I think the $40,000 in 2022 will be inflation adjusted from 2013 to 2022, so your spending would take a step up in year 11, rather than starting at $40,000 and being inflation adjusted after that point. So not exactly what you were looking for, but...

That takes a default 4% CPI spend from 94.6% success, -$401K low end point, and failures start ~ year 24. to 98.2% success, -$125K low end point, and failures start year 27? Pretty significant, and would be more if I knew how to model it to start at a nominal $40K in ten years. But I don't know that I'd call it "HUGE", and if those failure years are due to high inflation, it might not be possible to keep the spending flat for ten years. The reports you have here are from a pretty tame inflation period.

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Old 08-05-2013, 01:58 PM   #23
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Have been retired less than a year, so not a whole lot of data points yet. So far, my spending has gone down about 15% compared to when I was working - mostly due to lower gas and food bills. And I have not had any major unexpected expenses.
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Old 08-05-2013, 02:02 PM   #24
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The 4% rule assumes an annual increase in spending tied to the CPI. I wonder though, those of you who have been retired for 2+ years - has your actual spending increased annually by approximately the same amount as inflation?

I realize the 4% rule is only a model, and so I wouldn't expect anyone to be following it precisely. I'm more curious as to real-life data points. I imagine most who frequent this forum probably pay fairly close attention to their annual spend amounts in retirement and so there might be some valuable data to be gleaned.

I'd be curious to see annual spend patterns from this group. No explanation necessary as to increases/decreases in spending - just something along the lines of:

Retirement Year (RY) +1 = 2% increase
RY +2 = 2 % increase
RY +3 = no change
RY +4 = 1% decrease

etc, etc, etc...
I have only been retired (love that word!) 17 months but our living expenses are about the same.
I have a separate bucket for vacation and that has gone way up as planned.

great thread, I was surprised how people retired so long had no increase in spending.
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Old 08-05-2013, 03:23 PM   #25
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We retired in 2006, subtract travel and all other expenses are >1% year over year.
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Old 08-05-2013, 03:41 PM   #26
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great thread, I was surprised how people retired so long had no increase in spending.
Inflation is real and the only way spending can remain consistent is that you are spending less on some items than you did previously and it doesn't bother you.
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Old 08-05-2013, 04:55 PM   #27
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Inflation is real and the only way spending can remain consistent is that you are spending less on some items than you did previously and it doesn't bother you.
In the aggregate it may be real but not for every single item in everyone's expense basket. For example, the monthly maintenance charges on my co-op apartment not only were unchanged from 2009 to 2010 to 2011, they went down nearly 3% in 2012 and down nearly 2% more in 2013. That can more than offset small increases in other items such as food, gasoline, and utilities.
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Old 08-05-2013, 05:23 PM   #28
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Appreciate the thread. It confirms what I've read elsewhere and believed, that the adjustment for inflation in SWR is not necessary (at least not for those who watch what they spend).
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Old 08-05-2013, 05:40 PM   #29
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Appreciate the thread. It confirms what I've read elsewhere and believed, that the adjustment for inflation in SWR is not necessary (at least not for those who watch what they spend).
I think some account of inflation has to be given. This is sort of like the opening of a chess game (or war) which is only a plan that is expected to need modifications.

Other things positive and negative will be hard to anticipate. Things like:
-- when you actually take SS as events like 2008 stock crash may alter the decision
-- if the markets take a deep dive or give us a welcome present well above normal
-- if there are sudden health related expenses
-- natural disasters (maybe a fire or hurricane if you're in that region of the US)
-- a son or daughter suddenly needs help or decides to go to college (unplanned)

That is what I found in my post above. Embarrassingly faulty planning despite a lot of attention to this stuff. When running FIRECalc, all those colored lines in the final chart represent quite a spread of outcomes.
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Old 08-05-2013, 05:59 PM   #30
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Anybody who was around in the 1970's may clearly remember the inflation we experienced back then. Every time I went to the grocery store I was in shock. Just because one retires in a period of moderate inflation, doesn't mean that inflation won't be a huge problem at some point during retirement.
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Old 08-05-2013, 06:15 PM   #31
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Originally Posted by Bikerdude View Post
Inflation is real and the only way spending can remain consistent is that you are spending less on some items than you did previously and it doesn't bother you.
+1

I suspect people's habit changed and they might not noticed. For example, retirees shop less for clothes, or they may eat out or go to the movies less, etc... As they no longer care for some activities that they used to enjoy, they do not feel deprived. Hence they might not noticed that they spend less on something to make up for other things that go up in price.

Just a theory, of course.

My part-time income only stopped 1 year ago, and I am still settling into this new phase of life. I only have detailed spending data for 2011/2012/2013. Prior to that I only have the total numbers, and it was outrageous compared to now, due to children's college expenses, home improvements, foreign travels, etc...
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Old 08-05-2013, 06:22 PM   #32
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I am not retired yet but my spending has increased by about 20% in the last 2 years.
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Old 08-05-2013, 08:23 PM   #33
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Mine's about the same, but adjusted for taxes.
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Old 08-05-2013, 09:16 PM   #34
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There is a difference between an increase in spending during a year and an increase due to inflation. For example, if you are spending on the same things in a given year and you spend more because prices have gone up, then that is an increase due to inflation. OTOH, if your spending goes up because your are spending on more or different things that cost more then there may not be any inflation at all. Likewise, your spending can remain constant but if you buy less of something because the price has gone up then you've seen inflation whether your annual spending has gone up at all.
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Old 08-05-2013, 09:25 PM   #35
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There is a difference between an increase in spending during a year and an increase due to inflation. For example, if you are spending on the same things in a given year and you spend more because prices have gone up, then that is an increase due to inflation. OTOH, if your spending goes up because your are spending on more or different things that cost more then there may not be any inflation at all. Likewise, your spending can remain constant but if you buy less of something because the price has gone up then you've seen inflation whether your annual spending has gone up at all.
Kat, I have to agree with you. I know we have some real detailed people on here and can prove it personally themselves either way. But for me, although I say my costs haven't gone up, it really probably is more to lifestyle change. Just as a quick snap shot example for me. Last month gas shot up 50 cents a gallon, but my monthly gas costs went down. I just didn't drive much. Nothing I did on purpose, I just worked out that way.
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Old 08-05-2013, 10:14 PM   #36
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Inflation is real and the only way spending can remain consistent is that you are spending less on some items than you did previously and it doesn't bother you.
Oh, I'm sure it's a matter of reduced expenses in retirement. I don't think anyone believes that inflation is a non-reality for people who retire, just that other things counteract it, like reduced overall spending. Mulligan gave a good example above: gas prices rise, but you don't commute, so you spend less on gas. Same would go for food costs, which I imagine drop in retirement because you have more time to cook (vs. grab something quick), shop carefully, etc.
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Old 08-06-2013, 07:45 AM   #37
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First year of retirement my spending went up ~1.2% over preretirement spending.
Second year it went up about 12% by choice.
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