FI Inflation Solution

[ferco]

As a inflation hedge , could one just work enough to equal the inflation rate for the 1st 5-7 years of FI. For example, if your annual withdrawl is 48k and inflation rate is 5%, that equals $2400 or $200 per month to be earned. ASSUMING, you don't earn minimum wage would this approach not have a mitigating affect on worrying about the inflationary effect on your portfolio especially during the early withdrawl years AND the taxes on the $200/month would be miniscule.

I bring this up because I read on this board and other sites about the huge concern with the cost of living/inflation and how it can put a dent in the best laid ER plans.

This or some modification might be one solution.

 

[brewer12345]

 

[SteveR]

As a inflation hedge , could one just work enough to equal the inflation rate for the 1st 5-7 years of FI. For example, if your annual withdrawl is 48k and inflation rate is 5%, that equals $2400 or $200 per month to be earned. ASSUMING, you don't earn minimum wage would this approach not have a mitigating affect on worrying about the inflationary effect on your portfolio especially during the early withdrawl years AND the taxes on the $200/month would be miniscule.

I bring this up because I read on this board and other sites about the huge concern with the cost of living/inflation and how it can put a dent in the best laid ER plans.

This or some modification might be one solution. 

What would one do after the first 5-7 years to protect the nest egg from the wide swings in inflation that can happen over the 30+ years one may spend in retirement? I am not sure where you are going with this other than to think out loud about working part time for a few years to earn enough money to cover all your future inflation so you won't worry about your nest egg being reduced by inflation over the rest of your life.

I you could forcast the exact amount of inflation over the rest of your life I guess you could earn enough on top of your nest egg to account for it as long as you were accurate in your assessment of future inflation. Otherwise, you are just working to make a larger nest egg....which is like having a job while being retired. Or am I missing something?

 

[jdw_fire]

As a inflation hedge , could one just work enough to equal the inflation rate for the 1st 5-7 years of FI. For example, if your annual withdrawl is 48k and inflation rate is 5%, that equals $2400 or $200 per month to be earned. ASSUMING, you don't earn minimum wage would this approach not have a mitigating affect on worrying about the inflationary effect on your portfolio especially during the early withdrawl years AND the taxes on the $200/month would be miniscule.

I bring this up because I read on this board and other sites about the huge concern with the cost of living/inflation and how it can put a dent in the best laid ER plans.

This or some modification might be one solution. 

And the second with 5% inflation you work enough for the $2400 of the first year's inflation and $2400+$120 for the second year's inflation totaling $4920 the second year?  And this continues for 3-5 more years?  Sounds like you will be working FT in no time.

 

[ferco]

My concern was the first 5 years since this seems to be the most critical period for ER's regarding their withdrawals. I gave the inflation rate as 5% as a hedge since most sites quote 3% as the traditional number.
To me, the $200-250 per month over 5 years to safeguard the nest egg would be a drop in the bucket and could easily be accomplished with 1/2 - 1 day of "work" per month.....a VERY small price to pay for piece of mind.

 

[d]

why not just continue full time for another 30-60 days?

 

[jdw_fire]

And the second with 5% inflation you work enough for the $2400 of the first year's inflation and $2400+$120 for the second year's inflation totaling $4920 the second year?  And this continues for 3-5 more years?  Sounds like you will be working FT in no time.

I guess my not carrying out the math made my point obscure.  So:

year 1 requires $2400.00 additional that year to cover the 5% inflation
year 2 requires $4920.00 additional that year to cover the 5% inflation
year 3 requires $7566.00 additional that year to cover the 5% inflation
year 4 requires $10,344.30 additional that year to cover the 5% inflation
year 5 requires $13,261.52 additional that year to cover the 5% inflation
year 6 requires $16,324.59 additional that year to cover the 5% inflation
year 7 requires $19,540.82 additional that year to cover the 5% inflation

And now what do you do? If you go back to the $48,000/yr level you just cut you standard of living by 1/3.

 

[SteveR]

why not just continue full time for another 30-60 days?

Makes more sense to me unless you just "need" to work. Some people do...others never want to collect another paycheck because of what it takes to have one. It is all what works best for you. If you want a job, even part time, for the next several years and you are OK with that then go for it. Otherwise, either invest more aggressively or work longer to make up for the inflation impact if you are running that close to the edge.