Inflation

[viking111]

Do people actually increase their spending by inflation every year? And if so by how much?

 

[TheWizard]

I have no idea what my spending in retirement is (9 years thus far in) but I certainly don't sit around with a calculator and punch in inflation numbers.

I spend what I need to, to carry on, and invest what's leftover.
It's been working well thus far...

 

[38Chevy454]

I guess I am fortunate that I don't really determine my withdrawal vs inflation. I don't even really budget to the extent many do. I just monitor overall monthly expenses and as long as they are within normal bounds I don't worry about it. My yearly expenses, if you call it that, is never the same each year since I always have different big projects or costs that are planned. Basic monthly expenses is approx the same each year, although lately inflation has increased the monthly number.

 

[Jerry1]

While technically I think that increasing spend by the inflation rate is the way the 4% rule works, my goal is to try to eat inflation. I’m sure I can’t do it forever but, I’m going to try. So no, I don’t increase my spend by inflation each year.

 

[flyingaway]

Just received my HOA fee for this year. It is 25% more than that of the last year. Wait until the bill of the property tax arrives, the spending may become a little bigger.

 

[daylatedollarshort]

I always have ongoing projects to lower our overhead so most years our recurring expenses go down despite inflation.

 

[NW-Bound]

My expenses vary quite a bit from year to year. I don't consciously budget for inflation. I only care where my actual WR is, relative to the 4% rule of thumb.

 

[Dtail]

Very few folks actually use the 4% inflation adjusted guidance on a yearly basis.
Indirectly it could turn out to be close to that concept, but not consciously I believe.
The 4% guidance is a better indicator as to whether one is in decent shape to retire.

 

[Teacher Terry]

Everything is going up in price but my youngest son had some money saving suggestions that don’t impact my quality of life. For instance I now have T-Mobile for 15/month versus att for 54, switching to YouTube versus cable tv, etc.

 

[RobbieB]

Do people actually increase their spending by inflation every year? And if so by how much?

Yes. As much as it costs.

 

[daylatedollarshort]

Everything is going up in price but my youngest son had some money saving suggestions that don’t impact my quality of life. For instance I now have T-Mobile for 15/month versus att for 54, switching to YouTube versus cable tv, etc.

That is the kind of stuff we do. All those little changes can really add up when you find 20 or so every year to implement.

 

[HawkeyeNFO]

My biggest single expense is my mortgage. That cost is locked in as of a year ago, so it won't go up for 29 more years.

 

[Aerides]

Do people actually increase their spending by inflation every year? And if so by how much?

I mean I don't go "right, withdraw an extra X% to account for inflation" but if my groceries now cost $X more, then that's just what it is. My non-discretionary is going to go up, so I will spend more.

For me, same for discretionary. There is almost nothing I can think of that I would forgo because the price went up a couple of percent (or 7). Especially when it went up less than planned for the first 5 years of retirement.

FIRECalc expects your spending to increase with inflation. If you retire with a budget of $80k per year, your expected withdrawal dollars grow in the calculation.

 

[Bamaman]

My biggest expense is homeowner's insurance (2 houses) and car insurance (on 3 cars.) Insurance companies post rates based on an industry computer that estimates the cost of replacing the home. And my homeowner's policy increased $900 for the increased cost of wood. Most companies are wanting $4,000 a year for our homeowners policy.

My daughter recently had small collisions on each of our newest cars that didn't meet my deductible. I also have had three broken windshields with a $500 deductible.
Windshields with the laser readers behind the rear view mirrors cost $1,100 at Safelite. I found one at another windshield shop for $735. A new front bumper on a F150 is $850 at a dealer (unpainted), but I bought an aftermarket one for $404 online. Front bumpers are no longer a simple metal piece, and bumper covers and parts on them are priced out of sight.

We have been concerned about the price of gas--and all we can do is try to drive less--even in our Hybrid car. But we went to the grocery last night and found the prices to have just gone up another notch vs. 6 months ago. Steak is seldom on our menu now.

We live conservatively, but the total money being spent is up dramatically. We stick close to home and keep our noses down in these Covid times. That's about all the actions we can take.

 

[RetiredHappy]

Unless it is a significant purchase like buying another home, we don't put a cap on our expenses. If we need to pay a larger credit card bill, we just withdraw more from our investment accounts. I would say that our expenses vary about 25% year to year. We know that there is inflation but it has no effect on us todate.

 

[enjoyinglife102]

I annually spend what I need to enjoy life to the fullest broadly tracking the amount relative to my portfolio value to keep it all within reason. Like most, year to year, that amount fluctuates depending on many factors. I have no idea what overall inflation rate I'm experiencing; I doubt anyone does. I do know the government's "basket of goods"calculation isn't my basket of goods so if I was applying an inflation rate it wouldn't be that one.

 

[l8_apex]

Well, before I retired I figured I'd put half of my investments in something that I thought to be inflation protected - residential rentals. Rents have been going up even faster than general inflation so I don't bother tracking my expenses in detail now that I'm retired. (or semi-retired to some since I manage my rentals myself)

 

[finnski1]

I annually spend what I need to enjoy life to the fullest broadly tracking the amount relative to my portfolio value to keep it all within reason. Like most, year to year, that amount fluctuates depending on many factors. I have no idea what overall inflation rate I'm experiencing; I doubt anyone does. I do know the government's "basket of goods"calculation isn't my basket of goods so if I was applying an inflation rate it wouldn't be that one.

Same here.

 

[kgtest]

I spend what I need. Considering I am also growing every year, I am also spending more every year. So I guess the short answer is YES. My plan calls for my budget to stay within the boundaries of COL+inflation.

I spent more last year, then the year before. Same with the year before that. There was a year or two where I spent less, but I certainly don't "have to".

I don't eat less because food costs more. I don't buy less because goods cost more. And I don't drive less because gas costs more. I just pay more for the same quality of life...sometimes better QOL.

 

[marko]

Do people actually increase their spending by inflation every year? And if so by how much?

No one here is going to say "Ok honey we're going to have to switch to cat food, otherwise we'll be spending 4.35%"

The 4% is more of a guide than a "rule". Some years are better than others where you might withdraw 6% and then 3% the next. Its not that rigid. Last year I withdrew 11% to build a new house but that was an real exception.

 

[karen1972]

With 50 years of potential retirement, inflation was my biggest concern so actually trying not to increase it if I don't have to.

Due to tweaking a bunch of stuff like switching insurance companies and locking in sub 3% mortgage last year, this years budget is 4.2% less than last years actuals. Actually since retiring in 2015, this years budget is equal to 2016 & 2019.

I know I will eventually start adding some inflation in the fun money budget but not right now.

 

[viking111]

My experipent

So I've been playing around with firecalc and adjusting different inflation rates from CPI to 1% to 3% etc.

My initial withdraw rate is not 4%. It's more like 3%. My personal inflation does not go up by CPI.

So I set my inflation to CPI and I got a 100% success rate.
But I know that I don't increase my rate by CPI. I increase my rate for some things like at certain times. For example when I need to purchase a car it would have to keep up with pricing. But I dont purchase one very often.

I set my inflation rate in firecalc at 1.5% which is more consistent with my personal inflation and then I increase it for specific one time purchase as needed. I found that most years I don't even need to increase it by 1.5%. With that said we are early in our retirement years and we are 54 and 53. The other important factor is when we get older in our late seventies we won't be spending much.

So with the above guidelines, firecalc findings show very large end of retirement funds.

 

[N02L84ER]

I retired in 2012. Our WR started at 5.2% and trended downward to 2.7% in 2020. We were not changing our spending (other than paying off our small mortgage in 2018 which amounted to a 0.8% change). The bull market just increased the denominator a lot! We have no pensions and have not yet applied for SS.

 

[clifp]

I suspect that there is a high correlation between how close you track expenses and how long you've been retired.

When I first retired in 2000 I really didn't know how much I was spending so I dutifully did my tracking in Quicken. As I realized I had enough that I need not to worry too much. 2008/2009, I delayed a kitchen remodel, and postpone a trip, but I didn't sweat the small stuff.

I suspect for most people on the forum, were already pretty conservative when budgeting, and 10 years of bull market have given them plenty of cushion.

 

[brett]

Retired ten years now.

We only track one number. After tax spend on an annual basis. Simply take a monthly tape of our current account.

Started doing it a few years prior to retirement and never stopped. Two years on each side of an 8 1/2 X 11 paper. Handwritten. Not really certain why I still do it.

Spend much more time keeping track of the other side.