Originally Posted by halo
3) I take that 2007-starting SWR spending amount, and posit it back to 2004, then I apply the last three years of the actual CPI inflation to it (compounding inflation, of course). The result is my 2007 SWR spending amount. This is the maximum I can spend now, this year.
The logic is sound, however, your actual spending may not have followed inflation. Because the market has been buoyant since 2004, this will be conservative as long as you have not overspent those estimated numbers, e.g. if you spent $100k last year and have not changed anything, then inflation will drive you to overspend the SWR again this year. But it will also size the amount that you should cut back to be on plan.
And, of course, the CPI figures are understated. So you will likely experience higher inflation than CPI. We have been retired since 2002 and have tracked actual expenses. Here is our experience:
What has gone up more than CPI:
- air travel
- cell phones
- vacation rentals
and here is what is the same or lower:
- landline phone
- long distance
- dining out
- movie rentals
- car rentals
The difference is about 8% up but we manage to budget by switching, e.g.
- using less entertainment/sharing DVD rentals with friends
- YAK for LD, PayGo for cell phones
- switching to generic drugs or OTC/prescriptions instead of OTC (drug plan) - less frequent teeth cleaning at the dentist/no fluoride rinses
- more busses instead of driving/taxis
- biking to the store
- buying airline tickets on seat sales/travelling in low periods
- home swaps
- shopping sales for clothes/buying fewer/more mix & match outfits
- asking for "seniors" discounts - many are granted without proof of age