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Personal Inflation
Old 11-06-2007, 08:33 AM   #1
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Personal Inflation

In Your Money Or Your Life, the authors argue that personal inflation has been 0% for them (for the years 1970 to 1991, anyway), and can be for other retirees.

If if IF this is true, it has profound effects on how much to save.

Given that typically 3% inflation is estimated, SWR could go from 4% to 7%. Savings to generate the income would be reduced by 57%!

However, I'm dubious that this is the case in general.

So, those that are ER'd, and in particular those who have been ER'd for a while - what is your personal experience in spending growth
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I have an opposite problem
Old 11-06-2007, 09:36 AM   #2
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I have an opposite problem

For last 10 years my personal inflation rate is around 6%.
Examples here:
http://www.early-retirement.org/foru...tml#post324239
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Old 11-06-2007, 11:13 AM   #3
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sailor,

Thanks!!! The linked thread (and links from that thread, and so on ) are interesting reading!

Perhaps a better question would be, "How much does your spending change in ER while maintaining what you consider to be a constant standard of living?"

I find it interesting that (in a link Nords provided on one of the threads) Joe Dominguez (on of the authors of YMOYL) lived on $7,000 in 1969 and $13,000 in 1997. Hang on - let me punch those numbers into the calculator - about 2.25% annual inflation, and apparantly achieved by a declining standard of living!!!

Looks like planning for inflation is a valuable part of the ER plan.

Still interested in personal experiences, though.
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Not sure how I would calculate one
Old 11-06-2007, 11:51 AM   #4
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Not sure how I would calculate one

I can calculate how my spending changes over the years, but how much of that is inflation and how much increased or decreased spending? How much due to cost, need, or desire? Gas is easily computed, but am I driving less with more accessories and a longer vehicle life? Food is simple although even there one can buy better, more prepared, and more expensive food. Using a car less it lasts longer but you end up driving an older one so that make it less or more expensive? Then there are the sporadic items which you would have to account for over their lifetime but would take a sizable jump the next time you purchased them, and the other items which you may never replace in your lifetime. It is as difficult for an individual as for an economy.
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Old 11-06-2007, 12:02 PM   #5
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Originally Posted by TickTock View Post
In Your Money Or Your Life, the authors argue that personal inflation has been 0% for them (for the years 1970 to 1991, anyway), and can be for other retirees.

If if IF this is true, it has profound effects on how much to save.
This is way suspect. I suspect this is a result of reduced real spending, not living the same lifestyle and buying the same things in 1991 as in 1970.

If you cut *real* spending by 2/3 (say, from $90K to $30K in today's dollars) from 1970 to 1991, you could say your nominal spending increased 0%...but your real spending would be way, way down.

Unless, of course, electronics were regularly half of their budget year after year.
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Old 11-06-2007, 12:07 PM   #6
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In Your Money Or Your Life, the authors argue that personal inflation has been 0% for them (for the years 1970 to 1991, anyway), and can be for other retirees.

If if IF this is true, it has profound effects on how much to save.
Yes, and If if IF wishes were horse, then beggars would ride.

Ha
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Old 11-06-2007, 01:01 PM   #7
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I can calculate how my spending changes over the years, but how much of that is inflation and how much increased or decreased spending? How much due to cost, need, or desire?
Good points, and I think me using the term 'personal inflation' was a bad choice.

A better re-statement would be: "How much does your spending change in ER while maintaining what (to you) is a comparable standard of living?"

Still, given that Joe Dominguez experienced a 2.25% annualized increase in spending from 1969 to 1997, with an apparent lowered standard of living (and 'inflation', according to the article, was 5.33% during the same period (not explicitly stated, but can be derived from numbers in the article)), planning for some increase is prudent, and the 4% SWR is more on less intact...
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Old 11-06-2007, 04:24 PM   #8
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personal inflation and standards of living are very personal. i plan a future of adventurous travel either by boat or landbased or a combination. this will entail either living on the hook in tropical harbors or renting in developing countries. i will no longer have the stang gt vertible to fill with gas nor the house to maintain in expensive fort lauderdale.

my friends who love to burn bucks all day & night might think i am lowering my standard of living. but i know i can be happier elsewhere and so while i might be reducing my personal inflation, i believe i will be improving my standard of living.
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Old 11-07-2007, 10:54 AM   #9
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Yes, and If if IF wishes were horse, then beggars would ride.

Ha
That reminds me of my Mom. She'd always say that when we'd say we wished something would happen.

Then when something did happen (to someone else, usually) she'd say "There, but for the grace of God, go I."

My Mom had a saying for every occasion.

Mike D.
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Old 11-08-2007, 12:03 PM   #10
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personal inflation and standards of living are very personal. i plan a future of adventurous travel either by boat or landbased or a combination. this will entail either living on the hook in tropical harbors or renting in developing countries. i will no longer have the stang gt vertible to fill with gas nor the house to maintain in expensive fort lauderdale.

my friends who love to burn bucks all day & night might think i am lowering my standard of living. but i know i can be happier elsewhere and so while i might be reducing my personal inflation, i believe i will be improving my standard of living.
I think true freedom, is breaking the addiction to consumerism, and gathering
experiences instead of stuff.
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Old 11-08-2007, 01:10 PM   #11
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That reminds me of my Mom. She'd always say that when we'd say we wished something would happen.

Then when something did happen (to someone else, usually) she'd say "There, but for the grace of God, go I."

My Mom had a saying for every occasion.

Mike D.
I think these are old country sayings. I have a lot of them, but don't share too many here because on the internet they can sound sarcastic. But sarcasm was not their intent; just folk wisdom, and in the case of your Mom's "There but for the grace of God go I", tolerance.

I think overall I have had more help from this sort of thing than from spreadsheets.

I used it in commenting on the OPs post because really, can anyone who has been breathing in the 20th century think that it is possible to live for 20 years without experiencing inflation? Just because something is in a book doesn't make it reasonable, or even possible. I read that same book years ago and thought the guy was a nut. Helpful to remember that we don't know what these gurus lives are really like. and they may have a a vested interest in maintaining that ignorance.

Ha
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Old 11-08-2007, 04:30 PM   #12
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I thought it unlikely - but hey, why not try to gather a bit of data from the ER group?
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Old 11-08-2007, 05:56 PM   #13
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Because its probably one of the most overlooked and most crucial aspects of early retirement.

We focus hard on cutting our fund expenses by a .5-1%. We work hard on asset allocations to squeeze out an extra percent or so.

Then we decide that an agency calculation for a renter who works in the city, doesnt pay for health care, and buys a lot of electronics every year is our best correlative factor for inflation, and that investments linked to this calculation are 'real'.

Theres a lot of people that I think are pretty smart who fall for that last bit. Thats frankly disappointing.

Joe Dominguez' story woke me up pretty good. Take too little risk and pretend inflation isnt that bad, and you'll spiral into living in a group home and washing plastic wrap off. Not because you think thats frugal but because you have absolutely no choice.

Who fakes what, who thinks its a conspiracy theory or wants to troll somebody to amuse themselves is irrelevant.

Understand how your spending will change in retirement. Understand how it'll change over time. Invest so as to offset the changes, both one-time and ongoing. Dont end up living with 20 other guys in a disintegrating 4 story walkup in your 80's nibbling on salted wood pulp.

Hope you enjoyed your daily public service message...
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Old 11-08-2007, 06:29 PM   #14
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Dont end up living with 20 other guys in a disintegrating 4 story walkup in your 80's nibbling on salted wood pulp.
Now there's a cheery picture.

I usually scare myself by thinking of living in a cardboard box under a freeway, and scavanging the garbage cans for a meal.

Salted wood pulp, huh. Yuck. At least my imaginary dumpsters have old grocery store produce in them.

But then, that's why I have multiple safety nets built into my financial approach to retirement.
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Old 11-08-2007, 09:22 PM   #15
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Over 7 years of ER I've averaged 3% inflation. Biggest increases are State and local taxes and healthcare.
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Old 11-09-2007, 12:13 AM   #16
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Been ER for 12 years. Inflation has averaged about 3%. A couple of interesting items in our expenses:
1) Our largest expense for the first 9 years was health insurance. We relocated to another state three years ago and changed insurance, saved about $500/mo...same coverage.
2) Bought a new truck this year at a cost of $40K, which replaced one that cost $24K. It wasn't exactly apples to apples, but it was really close.
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Old 11-09-2007, 08:13 AM   #17
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Twinkle Toes,

If you don't mind sharing, which states? Healthcare costs are our biggest concern.
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Old 11-09-2007, 08:47 AM   #18
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Twinkle Toes,

If you don't mind sharing, which states? Healthcare costs are our biggest concern.
Moved from Texas to NM. I think TX has some peculiar requirements on insurance companies. I didn't do a lot of shopping in NM, just applied to BC/BS. We were thrilled with the premium. We both hit the big 6 oh! this year and our premiums went up $30/mo or about 12.5% We are both healthy so only have catastrophic coverage ($5,000 deduct). We have had occasion to use the insurance only twice in the last 3 years and both times the total bills were way under $5,000 deduct., but we went to "in coverage" doctors and filed through BC/BS so our bills were reduced to the "contract" rates. This summer when DH got sick, we got his prescriptions filled at Wal-Mart for $4 each!
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Old 11-09-2007, 09:00 AM   #19
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Moved from Texas to NM. I think TX has some peculiar requirements on insurance companies....
Texas is, overall, one of the most expensive insurance states in the union, particularly for homeowners' insurance but to some degree for health as well.

I think the state legislature is beholden to insurance companies here. At least there's no income tax, though, and if you LBYM it and live in a modest house, even the high sales and property taxes can be almost tolerable.
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Old 11-13-2007, 11:07 AM   #20
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BCBS of Texas and BCBS of NM are part of the same parent company
as is BCBS of Oklahoma and BCBS of Illinois... they are all part of HCSC
headquartered in Chicago. HCSC is looking to take in other non-investor
owned BCBS plans.
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