Panama Inflation

[Arif]

Getmeoutofhere and I were talking about the inflation rate in Panama. From 1999 to 2004 the inflation rate averaged 1.56%.
This got me thinking about the firecalc so I input our info with a 6.15% withdrawal rate and firecalc spit out a 91.7% success rate. Now keep in mind I used a zero inflation rate because I couldn't figure out how to input the 1.56% inflation rate (only options are 0, PPI, and CPI). So my thinking was that 1.56% rate would reduce the withdrawal rate to 5-5.5%. Funny thing is my mom had mentioned that prices in Panama hadn't changed that much in 25 years when she left for the US. While this is all academic because my plan is to save like I was going to retire in the US (worst case scenario) with the applicable inflation and current prices the data sure is interesting. I never looked at it this way. Any thoughts?

Edit: Moving to a low inflation country also has the effect of increasing your real returns as well. So someone living in the US might average a 7% real return and that same person in Panama will average 8.5% all else being equal. Extrapolate that scenario out for 10-15 years and the growth in your portfolio is considerably more by just moving.

Edit 2:Here is a list of countries and their 2004 inflation rate: http://www.indexmundi.com/g/r.aspx?c=pm&v=71

[Ed_The_Gypsy]

You could stay home. The US only had 2.5% inflation according to the chart.

[Arif]

You could stay home. The US only had 2.5% inflation according to the chart.

Yeah for 2004, BUT from 1999 to 2004 the inflation rate averaged 1.5% which is about 1/2 the inflation rate of the US. Big difference.

Originally Posted by Arif

inflation rate averaged 1.56%.
This got me thinking about the firecalc so I input our info with a 6.15% withdrawal rate and firecalc spit out a 91.7% success rate. Now keep in mind I used a zero inflation rate because I couldn't figure out how to input the 1.56% inflation rate (only options are 0, PPI, and CPI). So my thinking was that 1.56% rate would reduce the withdrawal rate to 5-5.5%.
Edit 2:Here is a list of countries and their 2004 inflation rate: http://www.indexmundi.com/g/r.aspx?c=pm&v=71

You can add the 1.56% inflation rate to your expense costs and set the inflation rate to zero.

[Ed_The_Gypsy]

Picky, picky. It also says Brazil only had 7.6% inflation, too. Certainly a snaptshot in time.

[free4now]

If your stash you are living off is invested in US dollars, then it's not clear to me that the inflation in Panama makes much difference to you living in Panama. What matters is the exchange rates at the time you do your spending. In countries with high inflation the exchange rates tend to equalize out the effects of that inflation... otherwise arbitragers would use the imbalance to great benefit.

[d]

Originally Posted by free4now

What matters is the exchange rates at the time you do your spending.

i believe the $/Balboa exchange rate is fixed at 1:1 ... so that wouldn't enter the picture here ...

[Arif]

i believe the $/Balboa exchange rate is fixed at 1:1 ... so that wouldn't enter the picture here ...

Panama is one of the few (only) countries that uses the US dollar and doesn't have its own currency other than coins (balboas). So if the US ever experiences double digit inflation and Panama's inflation remained constant, that might be interesting. The problem I see is if you ever move back to the US then your dollars would really be worth nothing due to years of inflation and spending.