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Old 10-29-2012, 05:42 PM   #21
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Originally Posted by gsparks2 View Post
I have a spreadsheet with all of the major categories indexed with their own inflation rate. I use multiples of my deterministic projection rate of 2.5% inflation assigned to different categories. Each year, I reset the values for each category to actual and project from there.

Just another warm fuzzy to make me believe everything will be all right.
Similar approach here. I have a spreadsheet with our planned budget for retirement. Next to each category of expense I have the corresponding inflation rate from the Bureau of Labor Statistics website for my region of the country. You can get as detailed as you want with this, down to the grade of gasoline that you buy, for example. I use the last 10 years historical CPI in most cases, but I also use forecasted rates for certain items like energy and medical. The resulting mix-weighted average, based on my expense profile, is 2.6%.

I'm 51 and planning to retire next year. I think the OP raises an important issue because: (a) each person's inflation rate will differ based on their spending habits, and (b) inflation is one of the most powerful variables in any retirement modeling over 30-40 years.
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Old 10-29-2012, 07:02 PM   #22
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Like many here, I have not been tracking inflation specifically. However, there are several major categories of expense that I have followed. I start with the assumption that NOTHING has gone down in price. I can't think of a single instance. There are items or perhaps categories on which I have not spent money this year, but I'm talking about price for value as a way to calculate inflation - not whether I gave up buying something because it's now too expensive (e.g., certain fresh fruits).

The things that come to mind on which I have a good handle include things like HOA dues and maintenance (up officially 8% this year from last); Electricity, about 15% (or more); Food out is up about 20% this year, but that's a bit deceptive. The places we eat have been holding their prices constant for about 3 years. Suddenly, most of them took a big jump. That IS one area we have cut back quite a bit because of price; Gasoline has gone up recently by about 10%, though I can't recall what it was at the start of the year; Medical has gone up about 50% this year, but will drop somewhat next year when our cost of Medicare goes back to "normal". The supplement always goes up about 8% per year on average; Car license was up 20% this year though that's the first big jump in a few years; "Food" (canned goods, bread, milk, fresh meat, etc. etc.) has easily gone up 30% in the past 3 years locally (includes smaller can/package size - VERY obvious to the casual observer); Car repairs up dramatically (parts and especially labor), though I can only guess it's been running 15% or more for the past couple of years.

So, a SWAG would be personal inflation is around 10%. I've heard that Hawaii rate of inflation has been much higher than the mainland, though I can't confirm that personally. I noticed significant cost increases on select items when we were recently on the mainland (year over year visits).

We have made some actual buying changes as alluded to above to "out flank" local inflation. In some cases we have simply stopped purchasing certain things which are not essential. So year over year spending is constant (or even down a little).
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Old 10-29-2012, 09:45 PM   #23
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I have been spending 15% of my total expenses not including income tax on food prepared at home. This will likely go up, even without food price increases (which I will get anyway), because since I now own a home outright and have no car, my other categories of expense have fallen. Really, with food it isn't so much what % it costs, but what it costs absolutely. Good food tends to cost money, although somehwat less if you pay the extra trasportation and home space costs to store a bunch of stuff you buy at Costco. Not for me though, the extra infrastructure would cost much more than the food savings, and anyway I like my current foodstyle.

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Old 10-29-2012, 10:00 PM   #24
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I have been spending 15% of my total expenses not including income tax on food prepared at home. This will likely go up, even without food price increases (which I will get anyway), because since I now own a home outright and have no car, my other categories of expense have fallen. Really, with food it isn't so much what % it costs, but what it costs absolutely. Good food tends to cost money, although somehwat less if you pay the extra trasportation and home space costs to store a bunch of stuff you buy at Costco. Not for me though, the extra infrastructure would cost much more than the food savings, and anyway I like my current foodstyle.

Ha
That is a good point, as my initial thought after the first sentence was, wow you spend a lot of money on food. But I was comparing my personal food expense with my monthly net income which would be under 8%. But, comparing it to my monthly expenses backing out my mortgage and car expenses, I am right with you around 15%.
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Old 10-29-2012, 10:47 PM   #25
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How many people here calculate what their personal inflation rate is? I'm looking for ideas on how to do this. I have a spreadsheet where I have my monthly expenses listed since 1998. Then I add a column that calculates the expenses for the previous 12 months. Overall, it has increased (no surprise there). But, for instance, if I compare the 12 month period ending August 2012, I have a positive inflation rate and if I compare for the 12 month period ending Sept 2012, I have a negative inflation rate. So I'd assume that my personal inflation rate is near zero for the past year. Is it better to just look at the past year, or go back many more years? Is there a formula in Excel that will take the monthly totals and calculate my "net inflation rate" since 1998? Does this seem like an accurate approach?

Another complication is when I make a major purchase, like a car, it dramatically increases my "inflation rate" for that year even though in my opinion this is not really inflation. Maybe the best way is to spread out the price of the car over the course of several years so the monthly totals
Check out my early 2012 post when I discovered that my spending after 12 years had only gone up 2.3% in total. Talk about a tiny personal inflation rate! This did not include the occasional one-off expense or major splurge, but it did include all the "regular" expenses and splurges. Spending as retirement progresses.
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Old 10-30-2012, 11:38 AM   #26
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Check out my early 2012 post when I discovered that my spending after 12 years had only gone up 2.3% in total. Talk about a tiny personal inflation rate! This did not include the occasional one-off expense or major splurge, but it did include all the "regular" expenses and splurges. Spending as retirement progresses.
Well your story dovetails with many finacial planners empirical storys of clients' spending which (by choice) stays nominally the same but declines in real terms with inflation.

It also supports front-loaded nestegg spending models like the the Bernike Reality Retirement Model.
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Old 10-31-2012, 06:33 AM   #27
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The first 10 years of our retirement have also been "low inflation" in that our current budget is not much higher that it was the year I retired. There are some pretty significant differences, however. Three fewer people living at home, we moved away from a high cost of living location to a medium cost of living location, and we spend much less eating out now. From now on I am sure the inflation rate of our basket of goods and services will be equal to or greater than CPI. The only way to keep our expenses below CPI will involve substitution, but I don't see how to do that without a decline in standard of living.
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Old 10-31-2012, 08:11 AM   #28
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... our plan is to not consider inflation in financial planning, by assuming that our net worth would balance out...


Sharing 23 years of Frugal Retirement
That is our plan.
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Old 10-31-2012, 08:33 AM   #29
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Originally Posted by audreyh1 View Post
Check out my early 2012 post when I discovered that my spending after 12 years had only gone up 2.3% in total. Talk about a tiny personal inflation rate! This did not include the occasional one-off expense or major splurge, but it did include all the "regular" expenses and splurges. Spending as retirement progresses.
Interesting, there is quite a bit of deviation year to year.

I went on my "retirement" budeget in 2008, made lots of cuts and adjustments. 2008 was down -22% from 2007
2009 was down -8% from 2008
2010 was down -5% from 2009
2010,2011,2012 spending is almost identical, no change basically
Total change 2012 is down -35% from 2007 but includes cutting fluff and waste.
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Old 10-31-2012, 08:37 AM   #30
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Interesting, there is quite a bit of deviation year to year.

I went on my "retirement" budeget in 2008, made lots of cuts and adjustments. 2008 was down -22% from 2007
2009 was down -8% from 2008
2010 was down -5% from 2009
2010,2011,2012 spending is almost identical, no change basically
Total change 2012 is down -35% from 2007 but includes cutting fluff and waste.
Yes, there really was. If I'd done that "study" a year earlier, my spending was down 20% from year one, so I would have assumed a negative personal inflation rate. I think my spending is up this year, so I'll probably compute a higher inflation rate.
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