Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Inflation and Magic Number
Old 11-04-2013, 01:04 PM   #1
Dryer sheet aficionado
 
Join Date: Dec 2009
Posts: 28
Inflation and Magic Number

How do you account for inflation when setting your magic number?

The amount I would expect to spend if I retire today will be less than what I would expect to spend next year if I hold everything constant except inflation.

The rule of thumb seems to be calculate what you expect to need/spend and you should have investments of 25 times that to limit your withdrawal to 4%. So if I'm currently expecting to spend $100K today, I should have $2.5M in investments.

If I wait a year and expect to spend $104K ($100K + 4% inflation), then I should have $2.6M in investments.

Does the 4% withdrawal rule take into consideration inflation so that next year my spending could increase to $100K + inflation?
__________________

__________________
Brian 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!

Old 11-04-2013, 01:27 PM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
HFWR's Avatar
 
Join Date: May 2005
Location: Lawn chair in Texas
Posts: 12,964
Quote:
Originally Posted by Brian View Post
Does the 4% withdrawal rule take into consideration inflation so that next year my spending could increase to $100K + inflation?
Yes, though there's been a fair amount of discussion around here about whether that's valid...
__________________

__________________
Have Funds, Will Retire

...not doing anything of true substance...
HFWR is offline   Reply With Quote
Old 11-04-2013, 04:59 PM   #3
Full time employment: Posting here.
 
Join Date: Jan 2008
Posts: 882
I always do my analysis in constant dollars.
__________________
jebmke is offline   Reply With Quote
Old 11-04-2013, 05:12 PM   #4
Thinks s/he gets paid by the post
imoldernu's Avatar
 
Join Date: Jul 2012
Location: Peru
Posts: 4,616
Leaving this here as a bookmark. It spoke to me.

Covers inflation in historical perspective. Long read.
Attached Files
File Type: pdf 181386183-Dylan-Grice-Something-Wrong-pdf (1).pdf (540.6 KB, 30 views)
__________________
Today is the oldest you've ever been, and the youngest you'll ever be again. - Eleanor Roosevelt
imoldernu is offline   Reply With Quote
Old 11-04-2013, 05:24 PM   #5
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,836
Yes the 4% SWR includes inflation. But a big issue in deciding "your number" I'd your actual spending. If I was to use 80% replacement income to calculate my number I'd need to save multiple millions. My actual number is one million as I'm frugal.
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”

Current AA: 65% Equity Funds / 20% Bonds / 7% Stable Value /3% Cash / 5% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
nun is offline   Reply With Quote
Old 11-04-2013, 07:25 PM   #6
Dryer sheet aficionado
 
Join Date: Dec 2009
Posts: 28
Thanks for the responses. I always thought 4% sounded low. But now it makes more sense to me. In my own spreadsheets I looked at the return on my investment and inflation as two separate issues.
__________________
Brian is offline   Reply With Quote
Old 11-04-2013, 07:52 PM   #7
Full time employment: Posting here.
 
Join Date: Jul 2011
Posts: 721
Another way to look at it... if you can average 7% on your investments and inflation averages 3%, you can afford to draw 4% from your portfolio forever.
__________________
panacea is offline   Reply With Quote
Old 11-04-2013, 08:43 PM   #8
Full time employment: Posting here.
 
Join Date: Nov 2010
Posts: 583
The 4% rule to compute in current dollars is what i use most, I also like to use the rule of 72 to get my head around future numbers.

In 24 years, inflation at 3%, will drive up costs to double the dollar price to buy an item. 72/3 = 24. Or from the other side, my non-cola pension buy half half of what it does, in that same twenty four years.
__________________

__________________
devans0 is online now   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


 

 
All times are GMT -6. The time now is 10:40 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.