Originally Posted by bizlady
Here's a COLA chart that social security has used for adjustments since 1975. If I did my math right, the average is 3.968%-yikes. We budgeted for inflation in retirement at 3.5% thinking that was a safe number to use. I know inflation was high in the late 70's and early 80's- but thoughts??
Dimson & Marsh's "Triumph of the Optimists" pegged 20th century inflation (in the U.S.) at about 3%, but in the last 30 years of that century it was closer to 5%.
Another issue-- let's say that you're wildly off in your estimate and the actual inflation rate is 5% vice 3.5% for the final 40 years of your life. At the end of the four decades, your expenses have risen by a factor of 7x vice 4x. Clearly you're not going to keep working for most of those 40 years (perhaps not for any of them), and just as clearly you're not going to blindly raise your spending by 5%/year or even 3.5%/year.
Doesn't matter what Social Security or the CPI are. Inflation rates are like SWRs-- they're personal and they vary over ER. Have you been able to calculate your personal inflation rate, and have you thought about how you'd change your asset allocation or your lifestyle if inflation took off?