How Will Inflation Affect Your 2022 Planned Spend?

[DawgMan]

As I transition from semi-retirement to full retirement in 2022 (start some level of withdrawals), DW and I took off the governor in 2021 as an experiment to see what we might spend without any budget. Outside of the pure discretionary spending, I noticed our spend on groceries and entertainment were up around 40% & 20% to their respective budgets. How much of this was just willy nilly spending vs inflation, I am not sure? None the less, it is clear inflation was an impact in 4th quarter and does not appear to be going away anytime soon. Full disclosure, we are planning on a larger than average spend that includes a significant discretionary spend, so while controllable, it's very apparent we will need to make some adjustments in 2022 due to inflation if we want to continue like type activities in 2022. A few specific observations...

- Steakhouse filet used to be $40 now $60
- Renting the big beach house for family trip was $9K in 2021, now looking like $12K in 2022
- Other obvious ones: most groceries, appliances, cars, furniture, fuel all up due to supply chain issues and general inflation

We all have our own personal inflation based on what we spend our $$ on, but it's been a minute (late 70's/early 80's) since we have had any real inflation. How will you adjust? I suppose the easy answer is you tighten the boot straps where needed. For those of us who rely 100% on our portfolios to fund our spend, the double wammy could be a down year in the stock market along with some big inflation. I suppose like always, plan accordingly, stay flexible, and wait and see how it plays out...

 

[Magus]

Biggest expense for me is housing (besides taxes) which is going to be slightly cheaper in 2022 vs 2021 (mortgage at 2.0% vs 2.44% first half 2021, insurance dropped slightly, taxes flat). Own both vehicles outright.

Probably not much change here with inflation on spending, but definitely makes me re-think my investments constantly. There are certain things at the grocery store or Target/costco I'll skip but thats probably about it. If it continues for a longer period of time (which I think is very possible), I imagine I'll probably eat out a bit less. Would also accelerate plans to downsize house and retire if property taxes were to skyrocket on my primary home. Was pleased they did not change again this year but I do expect them to go up considerably next evaluation.

 

[MichaelB]

We have had higher real portfolio returns, lower inflation and lower growth in expenses over at least the past decade, so we’re ahead by a large margin, even after including the higher inflation from this year and next.

We don’t plan any changes to our spending.

 

[Foghorn Leghorn]

Im planning on trimming the sails financially as needed to react to the overall economy. I fear rougher sailing ahead. All the federal spending is scary and I dont even have kids to factor into my concerns

 

[Montecfo]

Discretionary spending on home and travel has been far greater driver for us than inflation.

But on the inflation front, I consider trading down or sideways from goods/services that seem to be growing price rapidly. It's just good business in my view to try not to feed the inflation beast.

Having said that, the largest drivers of this recent bout of inflation do not seem to be affecting us much.

While a lot of our spending is discretionary, we are not willing to stop doing things we enjoy because of inflation concerns. How we do them could change somewhat.

 

[street]

We have had higher real portfolio returns, lower inflation and lower growth in expenses over at least the past decade, so we’re ahead by a large margin, even after including the higher inflation from this year and next.

We don’t plan any changes to our spending.

I'm in this category also. I see our spending down this year from last which will offset the high inflation we are seeing. So, I hope back to a normal spending year.

We really spent too much in the last two years for my frugal life stye but still way ahead in the game.

 

[Midpack]

We have had higher real portfolio returns, lower inflation and lower growth in expenses over at least the past decade, so we’re ahead by a large margin, even after including the higher inflation from this year and next.

We don’t plan any changes to our spending.

+1, same here fortunately. And I don’t expect our current inflation to last forever. We’ve had abnormally low inflation preceding this…

 

[NW-Bound]

We spend on things we need plus some wants, and only spend a bit more than 1/4 of what FIRECalc says we could. So, I expect no changes in spending habits, despite a bit of surprise at the rising prices.

I have not bought any big-ticket item recently, but the increased price of mundane home and garden supplies on Amazon is unmistakable, such as sodium percarbonate, neem oil, ferrous sulfate, etc...

 

[bobandsherry]

For past 6 years since I retired inflation has been lower than I had planned for. My return on my portfolio has greatly exceeded what I had planned for. If I were to retire today my spend could be 25% higher than what my plan and current spend is.

My house is also worth more than I thought, so overall assets are much higher. The largest share of my spend is housing; mortgage at 2.75%, taxes which was flat for this year, HOA/CDD fees which was up under 1% for the year. Medical Insurance and expenses is another large component, but with the change in ACA subsidy cliff this year, my true costs will be down for next year.

So, anyway, what happens in the short term doesn't change my long term plan. Maybe spend a little more next year, but that's ok as my spend as a % of my investments has continued to go down with the growth of my portfolio.

 

[misanman]

I just decided to increase our monthly withdrawals by 33% to compensate for 2021 and anticipated 2022 inflation.

 

[OldShooter]

We'll be getting nailed, having committed to building a house. Window company prices went up 30% since we starting talking in April. Friday we entered our window order to avoid the 7% increase that comes tomorrow. Our builder is very concerned about the price of OSB skyrocketing due to the tornado rebuilding so he has ordered what we'll need even though excavation won't start until March 1. Lumber prices going nuts again (https://markets.businessinsider.com/commodities/lumber-price), helped by Biden's doubling of tariffs on Canadian lumber. ... and the beat goes on.

I'm guessing that inflation factors will add $50K+ to the cost of the house since we began talking about it.

 

[Car-Guy]

No plans to change spending habits (as of now) but I'm watching this mess unfold. A few more years of this and I might make some changes. OTOH, at my age, I don't know why I would care too much. At least not the same as I might have 10 (or even 5 years) ago.

 

[Bryan Barnfellow]

"The annual inflation rate in Switzerland rose to 1.5 percent in November of 2021 from 1.2 percent a month earlier and slightly above market consensus of 1.4 percent." (Source: tradingeconomics.com)

From here the exchange rate for the USD/CHF pair is by far the biggest variable in my budgeting model. With changes in Fed tapering and plans for interest rate increases in 2022, I am feeling better that the dollar will regain strength. That said, I tend to budget at about 5 points below the projected fx rate for any new year.

-BB

 

[pacergal]

Don't most retirement calculators account for inflation in their process?

We have not really changed any spending and don't plan too, other than still no travel, other than fairly local by car.

 

[CincyDave]

Don't anticipate any changes to what we'll buy or do. Just will pay more for it. Our spend is less than half of what it could be so plenty of redundancy there.

 

[F.I.R.E User]

I live a minimalist lifestyle. No change.

 

[GenXguy]

This soaring inflation is really affecting my retirement plans. I'm a big time frugal spender and saver, so there's not much cutting back I can do or that is practical at this point. I'm not looking forward to living a lower standard as the massive price increases continue. It's not so much that inflation will "affect my spend" as the OP asked, but that inflation will mean that the same amount of spending will afford me much less for my money, so I'll have to go without spending on things I otherwise considered. So, same spend, less value.

True inflation has always been higher than the government figures, so inflation was never low to me. But now, I've seen about 15% over the last year, as I've mentioned in other threads.

Super high heating bills, big jump in gas prices, very big increase in homeowners insurance, big increases in health insurance, groceries higher with every trip to the store, much higher estimated costs for outstanding home maintenance and respective sinking fund, 10% jump in my car sinking fund. I live in a high property tax state, and I'm hearing property taxes are expected to go up considerably to cover the government expenses which are increasing. Relocation was a strong possibility before, but with home prices increasing significantly in most places while more depressed here, it looks like that will be off the table also.

Basically, I'm not nearly as likely to retire in the spring as I was almost certain to do before skyrocketing inflation. It's really disappointing. At least I have a good job with my own office, so it could be worse.

My stash is worth hundreds of thousands less now than what this same amount was worth in true buying power before the pandemic (referring to equal dollars, not factoring in gains/losses.)

Someone mentioned that the high inflation won't last forever. Well, inflation has always seemed too high for me, closer to 4% in the real world, and now closer to 15%, some things much more. But also, even if inflation happens to drop to 3% in a few years, that does NOT mean that prices will drop. They will still be highly inflated, and they will continue to inflate even higher, but just not as quickly. OK, there may be some things that drop, but on balance, be prepared to pay higher and higher prices, even if inflation returns to past levels.

 

[NW-Bound]

... even if inflation happens to drop to 3% in a few years, that does NOT mean that prices will drop. They will still be highly inflated, and they will continue to inflate even higher, but just not as quickly.

Prices once they go up don't go back down, unless the cause is due to shortages and has been remedied by increased production, such as oil prices and activities in exploring and drilling.

Then, when prices stabilize, one hopes that stock prices will continue to go up to catch up with living costs. In the 80s, once Volker slayed double-digit inflation, we enjoyed a booming stock market that last 2 decades. However, the market back then was climbing out of a hole, with the S&P P/E as low as 6.7 (March 1980).

Now, with the S&P P/E now close to 37, I don't see the chance of the stock market "going to the moon". Heck, it is now a lot closer to the moon than to the earth.

 

[Teacher Terry]

Now that I only need to consider myself probably very few changes. I am taking my trip to Ireland in June and it’s paid for. I will buy what I want at the grocery store but I am not a big eater. I feel sorry for my Dil’s parents in Poland where inflation is high and income is low. A pound of butter now costs the same as here.

Probably the only change I will make is not getting my dog’s teeth cleaned yearly as the price doubled from 300 to 600. I may just do it every 2 years. I switched my phone service from att to T-Mobile and saved 40/month. I now pay 15/month. When my charter contract is up in April I will probably switch to one of the streaming services which would save a lot.

 

[RonBoyd]

FWIW: Here is an article describing how to compute your personal Inflation Rate:

https://money.com/rising-prices-personal-inflation-rate/

This Link to the spreadsheet is hidden (kinda) in the article:

https://view.officeapps.live.com/op...tent/CMSImages/15150.xlsx&wdOrigin=BROWSELINK

 

[scrabbler1]

After I changed the stock part of my (taxable) portfolio at the end of 2019 from an actively managed fund to a similar index fund, I got back on the ACA subsidy train, reducing my ACA premiums be $300 a month. The ARP knocked another $100 or so off my tab. Together, my total expenses dropped to their lowest in the 12 years I had been retired.

My main housing expense, the co-op monthly maintenance charge, will rise only 1% for 2022. So, inflation will barely register in my overall spending. I do plan to cut out the organic rice because its price has risen 50% in the last year or so.

Maybe I add another $20 cash from the ATM to my wallet every month.

 

[goingtotravel]

Since DH and I both retired this year it's our first year living off pensions and savings. So far so good. We didn't travel this year so we spent way under our budget. We also didn't buy a car like we planned and can put that off as long as needed. We are probably spending more on things like groceries but for now that's not really impacting our numbers. Lucky that we could build in a large discretionary budget so, for now, inflation isn't a huge worry.

 

[brett]

We have had higher real portfolio returns, lower inflation and lower growth in expenses over at least the past decade, so we’re ahead by a large margin, even after including the higher inflation from this year and next.

We don’t plan any changes to our spending.

We are in the same situation. Considerably more equity today than when we retired.

Sometimes I look at bottom number and cannot believe it. As I recall, ten years ago I ran the numbers at 5 percent return with 3 point inflation just be be conservative. Seriously wrong on both counts. But...we stayed invested through the bumps and this has been very much to our advantage.

Despite 4-5 months of international travel (pre covid) each year. Not big spenders while we are home though. Just not big shoppers or clothes horses.

We are far more thankful that we have good health and that none of our close family or friends have had their heath impacted by covid. I have a distant cousin who was on a ventilator for three weeks. Cannot imagine how bad that experience and recovery must have been.

 

[Surewhitey]

We've been extremely consistent last & this year. Almost exactly the same spending just allocation changes. Surprisingly we spent less this year overall even with the travel & contributions $$ being double.

We've been shifting to different foods in some cases and eating less steak/brisket...still not eating out much other than vacations.

Biggest savings this year is car insurance. Went to the mile-wise Allstate plan saving us 30% on 2 cars. Working better than expected.

Overall, inflation has been noticed, but we still have a little control over the total dollars. Probably healthier for it.

 

[W2R]

I don't have a budget. Instead of a budget, I keep close track of what I have spent and on what. That gentle nudge is usually enough to keep my spending in line.

That said, my guess is that I'll be cutting back on discretionary spending in 2022 just because that is where my instincts will lead me. That's what happened in 2008-2009, anyway, and at the time it felt like the right thing to do.

But who knows? We'll see!