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Old 10-19-2007, 01:01 PM   #21
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They must of had some wonderful value on those outhouses
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Old 10-19-2007, 01:38 PM   #22
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Originally Posted by Robert the Red View Post
If the CPI has been under-reported for many years, this means that average Americans were considerable richer in the past than they are now. For example, if inflation since 1967 (say) were reported as a factor of 7 (say), but were really a factor of 14 (say), then $1 of income in 1967 would only be matched by $14 of income now -- but in fact, incomes have about held even with the CPI, so that $1 of pay THEN is only $7 NOW -- meaning that (in this fictitous example) the average person is 50% poorer than 40 years ago.

Now, you can argue about whether or not we (collectively) are poorer than before, but numerically the case is clear: under-reporting of CPI means the past was richer than we think. Over a long time, the difference mounts a lot (compound interest).
You are making a common mistake. In the past 50 years, we have had the benefit of increased earnings through productivity improvements. As an example, I made $8500/yr when I started with megacorp, and 25 years later, I made $192k/yr. But my dear departed Dad retired in 1970 and passed away in 2000. During that 30 years, his ability to live off his CPI-adjusted pension declined every year. And even though he had some savings to fall back on, he continuously reduced his living standard to maintain a buffer.

Fortunately his 1984 car (Toyota Tercel) and his 1974 TV (Sony Trinitron) survived to serve him his whole life. He shopped at The Salvation Army used clothing store. When he died, he had $185k in savings left plus a house and a cottage purchased in the early 40s.

Having witnessed the effects of CPI-adjusted living personally, I will not trust it.

(PS the Tercel was scrapped in 2001 but the TV is still working in my brother's house.)
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Old 10-19-2007, 02:02 PM   #23
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Honestly, i'm not interested in debating the fired ex moderator. He never really had anything valid or interesting to say about anything finance or investment related, IMO. If Quicken didnt have a calculator for it, he didnt have much to say.

I believe his argument was that since he felt his costs hadnt gone up much that based on that anecdotal evidence, everyones inflation rate was low and therefore the CPI was a perfectly applicable measure of inflation for everyone.

A point he elected to bring up whenever he was feeling particularly bored and in need of attention, and he was out of shrieky political comments.
Since he isn't here to defend himself, I would like to say that it seems to me that you have given a very one-sided viewpoint. You both had interesting things to say; as Maddy said, it was a good debate.

Ha
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Old 10-19-2007, 02:12 PM   #24
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On January 31, 1940 Ida May Fuller received the first Social Security check of $22.54 (a month). Using the CPI to adjust it to today's money, it would be $335.67 Most of the CPI adjust was for years before Boskin, yet who could live on that kind of money today?
Social Security didn't provide the same level of benefits in 1940 as it does today. I believe back in the '60s and '70s they started promising a considerably higher level of benefits in response to Boomers entering the work force in droves, making SS much more able to provide larger payouts. (Of course, as those boomers retire, we're seeing what a mistake that may have been.)

During that period, benefits increased substantially faster than inflation. Plus, inflation calculations used to be much different than they are today in several ways. Many would argue that inflation numbers used to be more indicative of true cost of living increases than they are now.
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Old 10-19-2007, 04:18 PM   #25
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Before the 60s and 70s, Congress made occasional adjustments for inflation/wages. In 1972, benefits were automatically indexed to inflation. The 4 Historical Misunderstandings About Social Security Since it took one wage earner to support a family in the past, and two now, it is very possible that they were richer in the past (money bought more than it does now).
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Old 10-19-2007, 04:43 PM   #26
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So, those of you who argue that CPI underestimates inflation would like to see higher social security payouts, right? Wait, aren't you the same guys complaining about our national debt and the looming unfunded future obligations crisis?

Would it make you feel better if the government doubled the inflation index, but increased the retirement age to, say, 90?
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Old 10-19-2007, 06:45 PM   #27
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Since he isn't here to defend himself, I would like to say that it seems to me that you have given a very one-sided viewpoint. You both had interesting things to say; as Maddy said, it was a good debate.
It was still a bit of a one sided fight when he WAS here to defend himself

Do I need to point to the recent post on the retire early home page where he asked the "super brain wizards" how to calculate a dividend yield? I believe the specific question was "If an investments value has dropped by half, how do you figure out what the dividend yield is?". Or the PM he sent me not that long ago where he asked what the difference was between a Roth IRA and a regular one? (seems his Google is broken).

As long as you stayed away from investing, finance, politics, and the quality of farmed vs wild fish...he had a lot of interesting things to say.

But if you'd like to take a swing at supporting his thesis that because he thought that cpi was close enough to his inflation, that it was probably close enough for everyones...I'm all ears. I sincerely pay a lot of attention to your posts Ha.

Not a lot of guys have been in this business since the days when stock certificates were printed on pieces of bark
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Old 10-19-2007, 07:54 PM   #28
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I sincerely pay a lot of attention to your posts Ha.

Not a lot of guys have been in this business since the days when stock certificates were printed on pieces of bark
Ah mi laddie, but flattery will get ye nowhere.

ha
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Old 10-19-2007, 09:47 PM   #29
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Since he isn't here to defend himself, I would like to say that it seems to me that you have given a very one-sided viewpoint. You both had interesting things to say; as Maddy said, it was a good debate.

Ha
But that won't stop a certain alpha male type poster from peeing on every bit of real estate he can manage to spatter.
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Old 10-20-2007, 10:15 AM   #30
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... a certain alpha male type poster...
Among this crowd that's way too generic a phrase! (*splatter*)
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Old 10-20-2007, 10:16 AM   #31
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Hey, are you still allowed to make insecure, snarky comments about people on your ignore list? I thought the whole idea of the ignore list was to put some people you dont agree with behind you...not continue to simper about them.

While I have you on the line, didnt MOVI just file for bankruptcy? That ISM/OSM is also down sharply from all the "Buy now!" signals. At least Blockbuster popped back up over 5 to provide a place for people to exit with only a humongous loss.
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Old 10-20-2007, 10:18 AM   #32
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Ah mi laddie, but flattery will get ye nowhere.
But theres nothing to say that I cant keep trying Uncle Ha.

Among all of the folks screaming "Charge!!!", its insightful to have someone asking if we've loaded the guns, kept some dry powder, and know where the enemy actually is.
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Old 10-20-2007, 10:37 AM   #33
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While I have you on the line, didnt MOVI just file for bankruptcy? That ISM/OSM is also down sharply from all the "Buy now!" signals. At least Blockbuster popped back up over 5 to provide a place for people to exit with only a humongous loss.
Thanks for the reminder...I was going to suggest a FAQs on individual stocks vs. mutual funds and active vs. passive management... I will put together some past threads and PM Nords when I get bored at work early next week....
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Old 10-20-2007, 11:39 AM   #34
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Not a bad idea. I noted in the last "Lets track our picks!" thread I saw, a fine example of institutional forgetfulness caused everyone to remember the good and okay picks, but not the bad ones that flew into the ground at warp 12 after receiving glowing recommendations.

Even the good to okay ones that were remembered werent beating the s&p 500. And people got grumpy when you mentioned the bad picks and lack of market beating results. Something defensive about not giving out their best picks to people on the board. I forget the details.

Anywho, back to the original topic (silly rabbit, segues are for kids)...inflation is probably the biggest bugbear an early retiree needs to contend with. As Twaddle more or less implies in his attempts at literacy, you'll probably have to control it with spending. As Nords states often, high allocations to equities have historically been a rememdy, but the volatility and long bull run might give some people trouble.

Factoring in 2% or 3% a year or relying on the CPI are probably going to give you a bad, slow burning surprise in 20 years. As several have noted (and my own dad has concurred with), social security on a CPI adjustment minus increasing medicare payments results in a slowly lowering level of buying power.

We often attribute this reduction in spending to "getting older and doing less" or "depression baby" stories. It may also be less money coupled with pride.

The good news is that you're only in trouble if your primary "earnings" are CPI indexed investments or income sources and you dont plan or want to have to adjust your spending over time.
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Old 10-20-2007, 11:54 AM   #35
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Would it make you feel better if the government doubled the inflation index, but increased the retirement age to, say, 90?
No but it would be nice if everyone understood that they cannot live on social (in)security without an extra $2 million on the side.

At least then they will keep working voluntarily (and supporting the payments for everyone receiving it).
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Old 10-20-2007, 11:58 AM   #36
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More anecdotal inflation bits among which: Domino's can't print menus fast enough to keep up with rising costs.
The Big Picture | Strange Inflation News

(I just bothered to post this 'cause I just came across this site and find it interesting overall.)
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Old 10-20-2007, 12:03 PM   #37
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Hmm...I'll have to go look for it but there was a guy who created a very reasonable looking basket of goods with a reasonable sounding consumption level and measured the price changes over the past 40 years. Interesting stuff if I can find it.

Pizza prices are incredibly stupid. I stopped at a place last week with my family and a 16" pizza with two drinks was $18...with a 50% off the pizza coupon! Costco's under $8 pizzas are the bomb. Now they've even made it square so that it completely fills a standard humongous pizza box.

Edit: shoot, that was amazingly easy
An Alternative Inflation Index

Very interesting read.
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Old 10-20-2007, 01:52 PM   #38
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An Alternative Inflation Index

Very interesting read.

CFB Thanks for the information. I thought it was interesting that his figures show a 6.6% annual compounded appreciation rate for the "average home".
On 20% down that would be a 11.5% annual compounded return on your down payment. Most people I know in the midwest were doing the 3% down FHA thing so they'd be making a return of 17.5%.

For you young pups their payments would be $138.38 with 20% down and $167.79 with 3% down. Imagine making your last payment of $138.38 when the new neighbor just paid $54,000 down to get a monthly payment of $1,370.52 for the same house. If you think inflation will be similar over the same time period you might want to think again about paying off the mortgage.
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Old 10-20-2007, 03:45 PM   #39
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I think one of their points was that due to the loss of overall value of the dollar, and the debt situation, you werent doing so well on any of the investments...including equities, real estate or gold.

And as I always have to point out, while inflation weighs heavily on the dollars the bank loans to you for a mortgage, it weighs equally on the invested money you'd have used to pay off the mortgage. Risk adjusted, its a wash.

I suppose theres one way to play investments against inflation. Taking a long range look at pricing as this report has done shows some great performers and some poor ones.

For example, investing in real estate, insurance, gas and oil, coca cola, beer, and higher education institutions look like winners. Hmmm, and those are some of the places that Warren likes to put his money, and those colleges sure do well with their investments too.

Losers? Sears, appliance and tool makers, barber shops, music, farm and dairy produced products, news media, consumer electronics suppliers.

Seems pretty rational to me...
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Old 10-20-2007, 05:44 PM   #40
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An Alternative Inflation Index

Very interesting read.
Hey, it's a start. But I couldn't figure out why anybody would buy a new house each year without selling the old one. In other words, it seems absurd to put the cost of homes in an inflation index. Which is probably why the BLS doesn't do that.

Also, I couldn't figure out how he determined his weights. For example, he decides to weight natural gas twice as high as electricity. The BLS weights electricity more than twice as high as piped gas. Personally, our home is 100% electric, but I know this isn't about my personal inflation rate.
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