Looking for suggestions

[Nords]

Quote:

Originally Posted by wabmester Wow.* Thanks, Nords.* *I think the message to the OP is clear now. You could have worked your butt off during retirement, had near-perfect market timing, used the equity in your home to leverage your stock bets, and rode out mind-numbing volatility.* *That would have given you 15%/year for the last 5 years. Or you could have invested in TIPS for 10%/year and relaxed.

Hey, Wab, I gave you a detailed answer because I hate the guys who say "I made a gazillion bucks by simply buying low & selling high, burying my mistakes, and making it look easy by never divulging the details." I'm trying to be one of those guys (the buy low/sell high part) but I'm not there yet. I do it because I enjoy the challenge and I'm not trying to tell Lookindum that he should do it. I don't appreciate the words being put into my mouth by your flip answer.

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Originally Posted by wabmester FWIW, I don't think TIPS will continue to return 10%/year. Your long-term expected returns should be about 2% above CPI-U. You'll get low volatilty, preservation of capital, and predictable income.

You have an ingenuous faith in TIPS beating one's personal inflation and your stated advantages are misleading. It's true that TIPS will deliver all of the things you mention, but I doubt that Lookindum will be able to stay ahead of REAL inflation, let alone support a safe withdrawal rate. (And I wonder if those TIPS returns include having to pay taxes on the phantom income. Ours are after taxes.) That 100% TIPS portfolio has been mentioned several times on this & other forums, and even the Vanguard Diehards acknowledge that it just doesn't keep up with erosion, I mean inflation. I think you do a disservice by presenting it as a panacea, especially when it doesn't address the very real danger of inflationary healthcare costs.

[MRGALT2U]

Quote:

Originally Posted by Nords Consider the whole picture before you flee to the "safety" of a bond/CD portfolio.* I watched my wife's parents go through the last six years of record-low interest rates with a similar portfolio and they were not happy, even though inflation was also at a record low.* Other ERs may not own stocks in their retirement portfolios, but their flip comments fail to mention that they're heavily invested in junk bonds & real estate to offer some inflation-fighting strategy.* Listen to the recommendations to add equities, even if it's just through Vanguard's equity-income funds.

I'll be honest (always am). You take away junk bonds and real estate
and we have nothing.

JG

[wabmester]

Quote:

Originally Posted by Nords I don't appreciate the words being put into my mouth by your flip answer.

I thought it was a fair summary. You got excellent market-beating returns by working hard at it, had lucky timing, and leveraged your investments by borrowing against your home equity. Which words did I put in your mouth?

Quote:

You have an ingenuous faith in TIPS beating one's personal inflation and your stated advantages are misleading.

Oh, that again. Would somebody here *puhlease* post their personal rates of inflation so we can put this one to rest. I don't use quicken, so it's difficult for me to nail this one down. I can only make a SWAG. My biggest expense is housing. Fixed-rate mortgages are immune to inflation (if fact, my payments have gone down as the result of refis). Rents have gone down too.

My health insurance has gone up, but it's a relatively small fraction of my expenses, and I have actually kept the payments pretty flat by changing my coverage types (yes, CPI-style substitution).

I haven't noticed a big increase in food costs. Gas costs have gone up, but energy and other utilities remains pretty cheap.

Bottom-line: the CPI-U seems to cover my personal inflation rate. Anybody here for whom that is not true?

[wildcat]

Wab -

How do you cover healthcare?

[wabmester]

BTW, I guess I should explicitly counter Nords' accusation that I'm presenting TIPS as a panacea.

Everybody has their own ideas about risk. * *The older you are, and the more money you have, the fewer risks you need to take. * *There are even some people who are old enough and rich enough that they can stick their entire net worth under the mattress with no risk of exhausting their financial resources.

The stock market goes in cycles. * We had a nice 20-year bull cycle recently. * If you're 60 years old and thinking about a large equity position, you've got to ask yourself if you'd be able to ride out an equal but opposite 20-year bear cycle.

Stocks are not a panacea. *

[wabmester]

Quote:

Originally Posted by wildcat How do you cover healthcare?*

I did a COBRA immediately after retirement (about $600/mo for a family for two), then switched to an individual policy (went down to about $400/mo for a family of two), had a kid, had our insurance go up to about $600/mo, and then switched to an HSA plan at about $300/mo with a $2600 deductible.

I'm certainly not immune to future rate hikes, but with a kid, I have a renewed interest in staying healthy.

[sailor]

Quote:

Originally Posted by wabmester Would somebody here *puhlease* post their personal rates of inflation so we can put this one to rest.

Mine was averaging 6.1% for last 7 years ( look also this thread from a month ago http://early-retirement.org/forums/i...57426#msg57426 )

[unclemick]

Vanguard Target Retirement - Income ( for those in retirement):

50% Total Bond Market
25% Inflation Protected Securities
20% Stocks
5% * Prime Money Market

A little of this and a little of that. Soooo - that's their best take on the matter.

Am I smarter than they are Wellllll - I have a little putz money to be a legend in my own mind. Bet the farm - nope. I have a up/down track record from 1966 to date - and that's why 75% balanced index. SS plus a non cola pension would cover a bare bones budget in a pinch.

The Norwegian widow is ready for some similarities of 1966-1982. History never repeats exactly - but sometimes it rhymes. Someone tell me who I'm mis quoting.

Heh, heh, heh

11 years in - going on 12

Bon Temps Rolliere - let the good times roll.

[wabmester]

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Originally Posted by sailor Mine was averaging 6.1% for last 7 years

Thanks, sailor. I really should try to nail ours down, but the quirks of quicken have always managed to turn me off.

Was there anything special to give you such a high rate of inflation? I'd guess that if your house is paid off, for example, then other factors that would have been in the noise suddenly become a big part of the signal.

[REWahoo]

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Originally Posted by unclemick2 The Norwegian widow is ready for some similarities of 1966-1982. History never repeats exactly - but sometimes it rhymes. Someone tell me who I'm mis quoting.

Think it was Mark Twain...the same guy who said, "Familiarity breeds contempt - and children."

REW

[MRGALT2U]

Quote:

Originally Posted by wabmester Thanks, sailor.* *I really should try to nail ours down, but the quirks of quicken have always managed to turn me off. Was there anything special to give you such a high rate of inflation?* *I'd guess that if your house is paid off, for example, then other factors that would have been in the noise suddenly become a big part of the signal.

I check my personal inflation by the retail price of a Starbucks
Frappacino. Best I can do now is around 1.19 ea. A year ago I was
paying .99. Thus, 20% in one year. Ouch!

JG

[maddythebeagle]

How can you afford Starbucks? Dividends from a day of dumpster diving?

[riskadverse]

Quote:

I moved all my 401K funds out of the stock market just before the big bust (had an uneasy feeling when Clinton announced the gov was going after Bill Gates) and haven’t had the courage to reenter the stock market.

It's interesting that those of us who dodged the big down turn in the market are more afraid to reenter than those who rode it down.
You would think we would be less "burned" than the buy and hold types.* Then again, maybe our timing is still good and reentry is still be too early.*
:P

[sailor]

Quote:

Originally Posted by wabmester Was there anything special to give you such a high rate of inflation? I'd guess that if your house is paid off, for example, then other factors that would have been in the noise suddenly become a big part of the signal.

Few categories from Quicken with big inflation numbers:
Recreation:Flying 9.3% (hangar rent went from $160 to $290, gas also went up)
Boat - 8.7% most marinas are increasing their fees faster than inflation, especially in Florida and near metro areas (Lake Lanier for us), insurance went up after the hurricanes in 2004.
Medical - 12.1%
Dental - 7.8% (mine root canal was $752 in 2000, wife's $1093 in 2005)
Water/Sewer - 5.2%
Hair Cuts - 7.6% ( mine went from $9 to $14, wife from $45 to $70 )
Massage - 8.3% ( went up from $37 to $65 )
Home Insurance - 9.6% ( up from $290 in 1999 to $460 in 2004 )
Utilities:Telephone - 9.7% ( up from $27 to $43 )
Groceries - 6.2% ( Whole Foods bought out most of nicer places to buy food ) for example steel cut oats went up from $1.99 to $2.69 )

[bosco]

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Originally Posted by sailor Hair Cuts - 7.6% ( mine went from $9 to $14, wife from $45 to $70 ) Massage - 8.3% ( went up from $37 to $65 )

don't understand these numbers. Are you practicing hedonics? Getting your hair cut less often?

the price increases you cite are way bigger, and inconsistent with the percentages you give. There must be more to the story.

[wabmester]

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Originally Posted by bosco don't understand these numbers.* Are you practicing hedonics?* Getting your hair cut less often?* the price increases you cite are way bigger, and inconsistent with the percentages you give.* There must be more to the story.* *

I think those were his annualized rates of inflation over a 7-year period (or between dates indicated).

The OP indicated that he has no mortgage, so I would expect his personal rate of inflation to be higher than the CPI-U, which is heavily influenced by the cost of housing (the biggest expense for most people).* * But, at the same time, that would mean that a large chunk of his annual $50K expenses are discretionary, so that should give him plenty of wiggle room even in the face of inflation.

And, remember, TIPS currently give you CPI-U + 2%, so for somebody just looking to preserve purchasing power, your personal rate of inflation can be 2 points higher than CPI-U and you'll still maintain purchasing power.

[sgeeeee]

Quote:

Originally Posted by sailor Mine was averaging 6.1% for last 7 years ( look also this thread from a month ago http://early-retirement.org/forums/i...57426#msg57426 )

I still don't understand how anyone is really able to calculate their personal inflation rate. *It seems to me that you would have to be anal retentive about shopping -- *purchasing exactly the same things in the same quantities every year. *The closest I've been able to come to a personal inflation rate calculation is to split my spending into the same categories that they use for US Bureau of Labor Statistics then use their inflation rate in the appropriate percentage to my own spending. *But that doesn't satisfy the complaints of those who think the government is secretly hiding the real inflation rate.

I haven't had two similar purchase years in my life. *And since retiring (2003), I've reduced annual spending while increasing my time doing what I want each year.

[wabmester]

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Originally Posted by ((^+^)) SG And since retiring (2003), I've reduced annual spending while increasing my time doing what I want each year.

To me, that is the bottom line.* *At what rate do your expenses grow?* *To do it right, you should probably separate fixed expenses from discretionary spending and amortize large purchases over their lifetime, but that seems like something quicken should be able to do for you.

[sailor]

Quote:

Originally Posted by bosco don't understand these numbers. Are you practicing hedonics? Getting your hair cut less often? the price increases you cite are way bigger, and inconsistent with the percentages you give. There must be more to the story.

Sorry,
I should have posted the years for all the prices.
And wabmester is right - these are annualized numbers.
The formula I use is:

( (new price / old price ) ^ ( 1 / number of years elapsed ) -1 ) * 100 %

For example massage changed from $37 to $65 during last 7 years, so:
( ( 65 / 37 ) ^ ( 1/7 ) -1 ) * 100 = 8.38%

sailor

[bosco]

Quote:

Originally Posted by wabmester I think those were his annualized rates of inflation over a 7-year period (or between dates indicated).

thank you...now it makes sense. Guess I didn't read closely enough

after I ran the calc for 7-year, I saw the same formuala posted below. Sorry, just didn't register the 7 year part.