Retiree Inflation Rate?

[mccl]

I am 58 and planning to retire in a few months.  I am trying to project future income needs, based on my current budget, then increasing it in future years an assumed inflation rate.

I have very few items in my budget that aren't subject to inflation (for example, no mortgage).  18% of it is for health care cost (premium, deductible, co-pays.) which will rise at a higher than average inflation rate.

What percent inflation factor do you think I should use when I project future inflation-adjusted income needs?   I am thinking that 5% is realistic.  But because 5% inflation increases my income needs so rapidly over the years, it makes a huge difference in my projection of whether I can retire safely.   I have used FIRECALC but I think it uses a general inflation rate (CPI or PPI as I recall), not a "retiree rate", which might be higher.

Is 5% about right?   What inflation factor do you folks use?

 

[John Galt]

Re: Reitree Inflation Rate?

If we have 5% inflation over a long period you good people will be deprived of my witty and insightful
commentary. I will have to sell the computer and have my phone line disconnected

John Galt

 

[oldcrowcall]

Re: Reitree Inflation Rate?

5% average inflation would wipe out a lot of retirees. Don't forget the CPI figure does include medical. I think medical inflation has been rising about 12%. What I did was project inflation on my expenditures ex-medical by 3 1/2% and did my medical costs separately at 13%. Also, I projected my SS to rise only at the CPI minus 1% based on what Greenspan has been spouting.

 

[unclemick]

Re: Reitree Inflation Rate?

A bout of 5% plus inflation in the future is not unreasonable - then 'aggresively frugal' and increased dryer sheet recyling will become necessary.

Even though my portfolio performance in the 1968 - 1982 period was flat and trailed inflation, I kept DCA and found ways to cut expenses. Now after eleven years in ER, if inflation comes roaring back, I will find ways to cut. As the late Bear Bryant(football) said - stay 'agile, mobile and hostile'.

 

[wabmester]

Re: Reitree Inflation Rate?

A bout of 5% plus inflation in the future is not unreasonable

It doesn't look like we'll have to wait very long for such a bout. CPI increase in Feb was 0.5%, Mar 0.6%. PPI data just came out today -- an increase of 0.7% last month. We're on track for annual inflation (a la CPI) over 6%, and we all know the CPI can underestimate our personal inflation rate.