The real impact of inflation on Retired Folks?

[brucethebroker]

As with all things "it depends."

Inflation includes so many factors, and most categories float above and below the curve every year.

Some stay predictably close to inflation, mainly, Food

Some don't: Electronics - TV's, for example, have trended down for years. Healthcare, the opposite. Tuition is way over inflation, and may be the one biggest thing that most of us don't have once retired.

I wouldn't spend the energy to try to parse if I should plan for 2% or 2.5% inflation in firecalc or my budget though. I'd rather go with the macro estimates, and if my personal reality is a bit less, then... great.

Well said.
I recently read an opinion that there are two categories of costs: those that inflate, and those that deflate. The author said that anything that can be produced (product/service) that is tech related, or can be completed with a robot/AI, (electronics, auto hamburger flippers?) will most likely deflate. Those products/services that require humans at work, or specialized skills, (plumber? Health care? Min. wage workers?) will inflate.

 

[marko]

I simply have more than enough invested in equities that historically have kept up with inflation. So I don’t worry about fixed income keeping up with inflation at all. For me fixed income is to lower the portfolio volatility. Equities are the heavy lifters that keep up with inflation.

Agree, however my fixed income (high yield bond fund) has been paying ~5%-6% for the past decade with a total return of 7-8%.

It is only a small contributor to our total income--equity dividends cover the bulk--but I think that sort of payout and total return should keep me ahead of the inflation curve for a good long time. No?

 

[marko]

[Edit] Comment deleted by marko. Off topic/irrelevant.

 

[Dtail]

Agree, however my fixed income (high yield bond fund) has been paying ~5%-6% for the past decade with a total return of 7-8%.

It is only a small contributor to our total income--equity dividends cover the bulk--but I think that sort of payout and total return should keep me ahead of the inflation curve for a good long time. No?

Yes makes sense coz you are also taking on more risk than is typical on the Fixed Income side.

 

[arch57]

Official CPI is lower than real inflation since they use substitutions and other financial gymnastics. There is also hidden inflation where many foods and products are smaller than they were in history (notice some of the "half-gallon" orange juice containers are now 52 ounces instead of 64, the size of Girl Scout Cookies boxes are smaller, etc.) and are also of lower quality in many cases.

The hidden inflation really pisses me off. Not a big fan of over-regulation BUT government should make manufacturers say “New Smaller Size...Same Price” it’s such a hidden rip-off.

 

[meleana]

Pretty much everything goes up every year no matter what and life gets harder and harder to afford. No getting around it.


Just the school and property taxes will kill you in places like NY.

 

[audreyh1]

Agree, however my fixed income (high yield bond fund) has been paying ~5%-6% for the past decade with a total return of 7-8%.

It is only a small contributor to our total income--equity dividends cover the bulk--but I think that sort of payout and total return should keep me ahead of the inflation curve for a good long time. No?

I avoid high yield bond funds because they are strongly correlated to equities and thus do not provide good diversification against equities. Thus I rely on equities to keep up with inflation, not riskier fixed income classes.

 

[Oz investor]

i have one interest-bearing security left ( in 2011 to 2015 i had somewhere over 15% of the portfolio in this asset still )

the remaining debt equity is a floating rate style

my observation in previous decades ( before i started investing ) is the inflation leads the resultant ( investor ) i interest rises ( and the lag can be disappointingly long .. unlike the cuts when rates fall )

high interest rates increase the risk of payment default ( late or non-payment ) or borrower bankruptcy ( even if regional government entities )