Poll! What Inflation Rate Do You Use?

[Closet_Gamer]

I generally model a 1-2% real rate of return.

 

[UtahSkier]

I use Quicken lifetime planner. I am interested in portfolio growth while the portfolio is being drawn down. To keep things simple, I use 0 for inflation and 2% for roi. Real return on a diversified portfolio is what is important.

 

[latexman]

I have 32 years of retirement in my plan. I bracket my analysis between the lowest and highest geometric mean inflation rate for 32 consecutive year periods of the CPI.

 

[scrabbler1]

On the income side, I don't assume a specific rate of inflation. Instead, I assume for each mutual fund I own, a number of cents per share per year from my stock and bond funds along with a share amount I hold. Because cap gain distributions are irregular and erratic for bond funds, I don't assume anything extra that way. For the stock funds, I do assume some cap gain distributions and I reinvest them so the share quantity goes up. Any excess of monthly investment income over expenses gets reinvested into a single bond fund so its share quantity rises.

 

[Totoro]

overwhelming consensus!

 

[ShokWaveRider]

Honestly, I do not use any of the ones listed. FOR US with our current spending habits I would say 1% to 1.5%. I cannot remember the last time I purchase clothes for example. Food is the only real key measurement. And USPS Postage . Everything else is modest. I have always thought inflation (When Retired) is subjective.

Here is my Logic, the first one is not logical but does explain my thought process.

If for example you have everything you needed to survive (including food and shelter for now) your inflation rate would be Zero as you would not need to buy anything. OK we all know that is a ridiculous assumption, but please bear with me.

OK now add the things you do buy, Food, RE Taxes, Utilities etc. I buy a lot of toys, TV Radios, Cameras etc., and they have all gone down in price since I retired. Utilities have gone up a little but I keep solid records of these and they are not that bad. We do not eat out as much as we did when working for example, buy a lot less clothes etc.

Inflation is a Consumer based number for most, it certainly is for us and thus quite controllable.

 

[imoldernu]

Honestly, I do not use any of the ones listed. FOR US with our current spending habits I would say 1% to 1.5%. I cannot remember the last time I purchase clothes for example. Food is the only real key measurement. And USPS Postage . Everything else is modest. I have always thought inflation (When Retired) is subjective.

Here is my Logic, the first one is not logical but does explain my thought process.

If for example you have everything you needed to survive (including food and shelter for now) your inflation rate would be Zero as you would not need to buy anything. OK we all know that is a ridiculous assumption, but please bear with me.

OK now add the things you do buy, Food, RE Taxes, Utilities etc. I buy a lot of toys, TV Radios, Cameras etc., and they have all gone down in price since I retired. Utilities have gone up a little but I keep solid records of these and they are not that bad. We do not eat out as much as we did when working for example, buy a lot less clothes etc.

Inflation is a Consumer based number for most, it certainly is for us and thus quite controllable.

+1 well said...

 

[ERD50]

None of the above. I use what is shown here:
...

"Shown here" is Historical CPI, darn quote system doesn't carry that with the quote.

Absolutely, inflation isn't a constant. So that poll needs, "none of the above", not the 2% to 8% and implied > 8%. For those who checked any box, IMO, you are:

https://www.chowhound.com/videos/youre-doing-it-all-wrong/how-to-make-a-burger-with-hubert-keller

-ERD50

 

[Danmar]

I don't see a need to forecast inflation. My divs represent over half my spend (noncola pension the rest) and are growing at about 7%. That covers inflation in Canada which has averaged under 2% for at least a decade. Why would I try to forecast inflation?

 

[RetireAge50]

I have a small pension and some cash which gets eroded by inflation but otherwise I'm thinking my investments will at least keep up with inflation. Also keeping a mortgage so inflation will help with that.

 

[mickeyd]

Since I can not predict inflation rates any better than I can predict what the stock market does, I do not use any rate at all. I take what the market gives and give back whatever the rate of inflation is. Simplicity.

 

[Blue Collar Guy]

I mentally plan 10% for healthcare and really zero for everything else. Healthcare is really my only long term concern. And I have an ace in the hole card if I need to with that to make it dirt cheap until Medicare.

Would you mind sharing this dirt cheap healthcare tip? Thank you

 

[Niuatoputapu]

What I learned early on in financial modeling, though, is that the really important variable is the "gap" between your chosen rate of inflation and your investment return. .....

+1

I use:

3% Inflation
4.2% return on a 60/40 portfolio
2% COLA for SS and DW's school pension

 

[ejman]

I don't think it makes too much sense for a retired FI person to try to forecast inflation. Unlike a working individual we have a large degree of freedom in controlling our expenses - By choosing where we live (since this is no longer controlled by work location) we can decide how often and how much to spend in all manner of things even such things and transportation and utilities and we have a great deal of freedom by substituting things.

If we choose to live in a rural/semi rural environment (as I do) we can choose how often to drive to town for groceries - daily, once a week, once a month - grow my own?. The CPI is meaningless to me.

As an aside, every calculator I've tried shows that once inflation gets to the 10% -20% + rate on a long term basis no passive financial asset survives for long so I'll go worry about my tomato worms instead

 

[flyingaway]

3% inflation, 5% portfolio return, so the real return is 2%.

 

[kcowan]

We use 5% for our budget inflation rate and 7% for portfolio returns. The has little to do with official rates but has held so far for 14 years with a couple of exceptions. We track the years when it does not work but have not had to adjust yet.