Has your annual spend increased by inflation?

[intent]

The 4% rule assumes an annual increase in spending tied to the CPI. I wonder though, those of you who have been retired for 2+ years - has your actual spending increased annually by approximately the same amount as inflation?

I realize the 4% rule is only a model, and so I wouldn't expect anyone to be following it precisely. I'm more curious as to real-life data points. I imagine most who frequent this forum probably pay fairly close attention to their annual spend amounts in retirement and so there might be some valuable data to be gleaned.

I'd be curious to see annual spend patterns from this group. No explanation necessary as to increases/decreases in spending - just something along the lines of:

Retirement Year (RY) +1 = 2% increase
RY +2 = 2 % increase
RY +3 = no change
RY +4 = 1% decrease

etc, etc, etc...

 

[rbmrtn]

No. Mine decreased 08, 09 ( waste cutting ) been basically flat 10, 11, 12 and so far in 2013

 

[Midpack]

I have only been retired for 2 years, DW is still working, but our spending has not increased at all yet. However, I'd think each persons spending plan would have more to do with their annual increases than CPI. IE, a retiree with a bare bones/essentials only spending plan could theoretically be fully impacted by CPI whereas another retiree with a more generous "spending plus" plan could avoid increases at will, or anywhere between.

And of course there will be some years with major stepwise changes due to health care coverage changes, pensions, annuities, etc. But I suspect you know all this...

 

[W2R]

I retired in November of 2009.

2010 spending: $X
2011 spending: (0.856)$X
2012 spending: (0.866)$X
2013 spending: (1.008)$X (projected)

I don't think my spending has been impacted by inflation, so much as by what I paid for.

 

[Ready]

I have 20 years of expense history in Quicken that I can look back at, and I have spent essentially the same amount each year for the past 20 years without seeing any real effects of inflation. There are clearly some areas where inflation can have a big impact - health care and rent come to mind.

If you are still working and your employer pays for health coverage, and if you own your home and therefore have no rent, you may find that inflation has very little impact on you.

I went to my favorite chinese restaurant this weekend for lunch, where the average cost of an entree is about $9.00. 20 years ago, the same entrees still cost between $8-$9. And the dress shirts that I used to buy at Costco this weekend for $18.00. 20 years ago they were around $16.00.

I think you have to look at how you spend your money and whether these expenses are highly sensitive to inflation. Perhaps golf memberships and other luxury items have gone up significantly in the past 20 years. Everyone has their own spending profile. The point is, not everything goes up 3% just because CPI is 3%. Think how much we used to pay for flat panel TVs 10 years ago vs. today. Or computers, or virtually any kind of technology. All of this stuff has gone down dramatically in the past 20 years.

 

[clifp]

My biggest expense that have increased in the last 13 years are
#1 Health care $120--> $340/month plus another $200 for gym fitness classes
#2 Energy gasoline $1.40 -> $4.30 gallon electric bill from $70 to $180. With Solar and an electric vehicle that will be very low $17 month or so.
# 3 Telecommunications. My current cellphone, internet,T cable runs about $180, I don't have great record but I think phone, plus internet,and cable was about $100 back in 2000.

Somethings like electronics, and flying actually have gone down, and lot of stuff like food and clothing is only marginally higher than it was back in 99/2000.

 

[ERD50]

Excellent thread topic.

I've been retired almost ten years (!), and my spending (surprisingly) has been flat. I don't micro-manage my budget, but I know the total we spend each year - I just add up withdrawals from the two accounts we pay bills from, and add back any transfers or reimbursements.

We have had two kids leave the house in that time, and the remaining one is away at college most of the year. So kid-related expenses like food/clothing/misc (edit - and cell phone plans!) may have been a part of that ( for this tracking, I count college expenses separate from 'our spend', and I make the kids pay their own car ins).

I have more time to track down ways to save money - I have gone to VOIP phone, replaced my dead iMac with a cheap laptop and loaded Linux on it ($400 versus maybe $1100 for an iMac?), and other DIY things. Since I don't micro-manage, I can't get to more detail w/o a lot of work, but there you go - one data point, FWIW.

edit/add: Health Ins and Property Taxes ( ~ 5%/year!) have gone up, small mortgage ( a 5/1 ARM) has gone down.

-ERD50

 

[Animorph]

Our budget has been limited to inflation raises for 10 years now. We skipped the 5.8% raise in 2009 since it was obvious we wouldn't need it as much as our portfolio. We use Quicken with accounts that contain the balances for each budget category. Last I checked, our spending has been pretty flat and we're just collecting a bunch of excess funds in most categories. I retired in 2007, DW hasn't yet. Our youngest DS should graduate from college in a year, but when DW retires we'll have heath insurance costs and additional travel costs to budget for. Our budget will go up then, and hopefully we can successfully spend it.

 

[scrabbler1]

Good threat topic, I agree.

I retired in November of 2008.

2009 spending: $X(09)
2010 spending: $X(10) = 1.215 x $X(09)
2011 spending: $X(11) = 0.920 x $X(10)
2012 spending: $X(12) = 0.845 x $X(11)

Two big reasons why my spending spiked in 2010 before declining in 2011 and 2012. First was the sharp (20%) rise in my individual HI policy. Second was a spike in my income tax bill due to a huge short-term cap gain distribution in my big bond fund. Because this also boosted my income, I automatically had the money to pay the tax bill, of course.

In 2011, after a second huge increase (25%) in my HI policy, I dropped it and switched to a bare-bones policy in the middle of the year. With the ACA already passed, this was meant to be a temporary measure until the end of this year when I will switch to a broader (and subsidized, hopefully) coverage through the exchanges. Also in 2011 the huge short-term cap gains distribution I had in 2010 decreased a lot, lowering my income tax bill.

In 2012, I had a full year of the low-cost, bare bones policy while the short-term cap gains distribution nearly disappeared (or became a long-term cap gains distribution taxed at 0% federally). These further reduced my total spending on HI and income taxes.

Even with my smaller, less volatile expenses I had some increases but not due to inflation. I chose to more than double the liability limits on my car insurance in 2010. I also had to upgrade my cable TV service in 2010 when they required unscrambling boxes for all customers.

So, it is kinda tough to figure out my "true" inflation rate.

 

[Focus]

Similar thread from about a year ago...

Inflation, shminflation

 

[audreyh1]

Pretty much flat here too after 13 years.

http://www.early-retirement.org/for...etirement-progresses-59692-2.html#post1163645

 

[donheff]

I have been ERd for 8 years and spending has remained flat. I can't really say whether inflation has effected essential expenses since I don't really track them. My spending includes a lot of luxury travel which varies significantly from year to year but I have a set monthly transfer from savings to checking and will pay ahead for travel in flush years (when possible) which tends to even things out. For example, I am well in the black this year so will probably pay as much as I can of a January New Zealand trip in the fall. I suspect that if I tracked essentials (food, transportation, utilities, etc) separately I might find some inflation effect. But that is a relatively small portion of our overall spending.

 

[ShokWaveRider]

I have noticed food has increased quite a bit in the last 2 years. even Walmart prices seem to be a lot higher. Probably because of Fuel prices but a substantial increase regardless. I would say our (Me and DW) monthly food bill has increased by about $100pm in 2 years. I think that is high.

Of course Fuel is higher, GAS (Propane) and electric and water all seem higher.

Inflation is real even though we are programmed otherwise. As a country we need to start admitting that it is NOT passing us buy just because we (or at least some of us) think it may be.

Just ask any pensioner living on a fixed income, with current low interest returns on fixed assets. Real or not most folk rely on SS and fixed income 401ks for their retirement and they are being slaughtered at the moment in the interest of "growth".

 

[Badger]

Our spending has increased in the past 2 years but that was because we bought 2 cars with cash (first time we bought new cars), remodeled a bathroom (wife waited 20 years for this), landscaped the back yard (made the wife happy again after another 20 year wait), and taken 2 7-12 day cruises with 2 more ready to go within the next 5 months (wife wanted to see a little of Italy and Greece). Just trying to help the economy in our small way. We have been very frugal in the past and still are in most things but now we plan to enjoy our hard work and investments. However, our net worth has increased so we are better off financially than we were 2 years ago. Go figure.

Cheers!

 

[Bikerdude]

I've been retired almost 13 years and my spending is 30% higher. The big inflation offenders are:

Local & State taxes.

Healthcare.

Energy.

 

[pb4uski]

I've been retired 18 months and so far our spending has been flat. Even when I worked our living costs have been fairly level. If I adjust for variability caused by vacations and capital items (furniture purchases, significant home improvement projects, etc that are very discretionary) our base living costs are quite level both from year to year and also from the last year I worked (after adjusting for having two houses rather than one that year).

 

[Lsbcal]

I'm a bit surprised by this picture and maybe a little embarrassed by my planning ability . This view shows the difference between start of year planning and actual year's outcome:

With SS now, really reduced medical due to turning 65, and low taxes until RMD's, we will be able to spend like drunken sailors and still stay below 4% of portfolio spending.

 

[W2R]

With SS now, really reduced medical due to turning 65, and low taxes until RMD's, we will be able to spend like drunken sailors and still stay below 4% of portfolio spending.

Wow, that sounds great. Have fun!

 

[Lsbcal]

Wow, that sounds great. Have fun!

It's going to be a downhill battle but we will try.
The only fly in the ointment is we are not getting any younger.

 

[W2R]

It's going to be a downhill battle but we will try.
The only fly in the ointment is we are not getting any younger.

There will always be something to spend your money on, I would think! You could have the coolest walker in town, if/when the time comes for that, maybe with hand-painted racing stripes and a built in radio.

 

[intent]

Similar thread from about a year ago...

Inflation, shminflation

Thanks for the link, I missed that one.

Thank you all for sharing your results - this is really interesting stuff. I wonder, has anyone modeled a retirement withdrawal strategy based on the assumption that spending levels would remain consistent for the first 10-15 years. It would seem this could make a HUGE difference on the total portfolio amount needed for retirement.

 

[ERD50]

... I wonder, has anyone modeled a retirement withdrawal strategy based on the assumption that spending levels would remain consistent for the first 10-15 years. It would seem this could make a HUGE difference on the total portfolio amount needed for retirement.

Here's a shot at it in FIRECalc:

FIRECalc: A different kind of retirement calculator

I set spend on the first tab to zero - Port$ to $1M for ez math.

Then in "other income/spend" tab, I set $40,000 spend, no inflation, start year 2013, then negate that with a $40,000 income, no infl, start year 2022, then add $40,000 spend in 2022 WITH inflation adjustment.

This is close, but I think the $40,000 in 2022 will be inflation adjusted from 2013 to 2022, so your spending would take a step up in year 11, rather than starting at $40,000 and being inflation adjusted after that point. So not exactly what you were looking for, but...

That takes a default 4% CPI spend from 94.6% success, -$401K low end point, and failures start ~ year 24. to 98.2% success, -$125K low end point, and failures start year 27? Pretty significant, and would be more if I knew how to model it to start at a nominal $40K in ten years. But I don't know that I'd call it "HUGE", and if those failure years are due to high inflation, it might not be possible to keep the spending flat for ten years. The reports you have here are from a pretty tame inflation period.

-ERD50

 

[David1961]

Have been retired less than a year, so not a whole lot of data points yet. So far, my spending has gone down about 15% compared to when I was working - mostly due to lower gas and food bills. And I have not had any major unexpected expenses.

 

[SJ1_]

The 4% rule assumes an annual increase in spending tied to the CPI. I wonder though, those of you who have been retired for 2+ years - has your actual spending increased annually by approximately the same amount as inflation?

I realize the 4% rule is only a model, and so I wouldn't expect anyone to be following it precisely. I'm more curious as to real-life data points. I imagine most who frequent this forum probably pay fairly close attention to their annual spend amounts in retirement and so there might be some valuable data to be gleaned.

I'd be curious to see annual spend patterns from this group. No explanation necessary as to increases/decreases in spending - just something along the lines of:

Retirement Year (RY) +1 = 2% increase
RY +2 = 2 % increase
RY +3 = no change
RY +4 = 1% decrease

etc, etc, etc...

I have only been retired (love that word!) 17 months but our living expenses are about the same.
I have a separate bucket for vacation and that has gone way up as planned.

great thread, I was surprised how people retired so long had no increase in spending.

 

[grasshopper]

We retired in 2006, subtract travel and all other expenses are >1% year over year.