Inflation, shminflation

[Focus]

I know "personal rate of inflation" versus the CPI has been discussed here before, but this is the best summation I've seen:

What Is Your Personal Rate of Inflation? by Darrow Kirkpatrick (caniretireyet.com)

I agree with his conclusion:

In the end, watching and optimizing your lifestyle will pay greater dividends than the general wisdom about inflation allows. Clearly prices increase in some areas that we can't control. (Health care comes to mind.) But in many other areas, inflation can be muted over even several-decade time spans, because technology plus our own behavior give us wide latitude to control it effectively.

I suspect the personal rate of inflation is lower for those of us in this forum prone to frugality (that is, 99.9%).

 

[JPatrick]

Yup, we do lot of U-turns when we see prices gone wild. A better idea is generally one aisle over.
You ain't gonna inflate me without a fight..

 

[ejman]

According to Quicken our expenses have been very consistent at about $60K a year since I retired 10 years ago. Our standard of living feels about the same and we do pretty much the same things. According to some inflation calculators, a dollar today is worth about 30% or so less than 2002 so our expenses should have drifted up to about $78k a year for the same standard of living now. I really can not explain why this is not so but I really don't feel like we have changed anything in our normal lives from 10 years ago. As a retirees we have a great deal of control over how we spend our money and I think we arrive at a spending level we are comfortable at and we pretty much stay there unless some very major events take place.

 

[LakeTravis]

Interesting post. I was thinking the same thing this morning when I tallied my monthly expenses from 1990. Housing, utilities, food, vehicles, insurance, etc.

And I realized that my current monthly expenses are only a few hundred dollars more than they were 22 years ago.

I wondered how that could be - food certainly costs more, as does fuel and electric bills and insurance. But I spend the same amount now on food as I did in 1990 - I just buy different items. I had two vehicle payments in 1990 - both of the vehicles we currently own are paid off. I had a boat payment then, don't now. My housing costs are the same even though this home is three times larger - but it's paid off. The property taxes are what my entire PITI were in 1990. And utilities are roughly double.

Net result is that monthly cost is roughly the same, and as prices rise over the years our reduced needs and increased asset accumulations appear to offset most if not all of any inflationary affect.

 

[Mulligan]

My monthly expenses really haven't changed much either the past 10 years, maybe $100 more a month. The 2 wildcards would be any healthcare or dental expenses. I haven't incurred much of either, but I know implants aren't cheap thanks to posters here on this site. I love to travel to Vegas 6-8 times a year and haven't noticed that going up either as I have become a better deal shopper and can take the odd departure flight since I have little time restraints.

 

[ejman]

Yes, that's why I'm starting to wonder if all those calculators showing my expenses shooting all the way up to the moon and beyond on account of inflation might not be a bit off. I wonder if there are really any reliable statistics of actual expenses of actually retired folks that were not just at subsistence level.

 

[Mulligan]

I think that inflation is out there, its just when we get older we make certain lifestyle changes, some become more " deal" conscious, and sometimes some people aren't willing to pay for things that don't provide value. I am more price conscious of things now more than ever, even though I really am in a better place now where I truly don't have too. I still cringe from my wasteful youth days. In 1988 is was clearing $1000 a month. I had a $250 a month car payment, spending $100 on gas and $50 on insurance. I was so interested in chasing girls in my Z28, I was too dumb to realize 40% of
my take home pay was going toward a car. My total car expenses now 24 years later are about $150 a month, less than 4% of my pay now.

 

[Nords]

In 1988 is was clearing $1000 a month. I had a $250 a month car payment, spending $100 on gas and $50 on insurance. I was so interested in chasing girls in my Z28, I was too dumb to realize 40% of
my take home pay was going toward a car.

Maybe it's better to think of it as spending 40% of your take home pay on chasing girls...

 

[Mulligan]

Maybe it's better to think of it as spending 40% of your take home pay on chasing girls...

That might sound a little better, but looking back I should have been able to accomplish the task in a more fiscally prudent manner

 

[kumquat]

That might sound a little better, but looking back I should have been able to accomplish the task in a more fiscally prudent manner

How you did it doesn't matter. What does is, how did you do at it?

 

[Nords]

That might sound a little better, but looking back I should have been able to accomplish the task in a more fiscally prudent manner

In the military, it's always better to show up for the mission with more firepower and ammunition than you really think you'll need-- you probably got a lot further with a Z28 than with a '67 VW Beetle...

 

[scrabbler1]

While there is inflation out there, keep in mind that for some goods and servies the price has dropped over the years. For example, I paid for for car insurance in 1987 for my 1-year-old car which cost $6,500 new than I do not for my 5-year-old car which cost $18k new with higher limits AND my homeowners insurance combined. The reason for this is I was 24 years old in 1987 and unmarried young male drivers under 25 pay a lot more than those over 25 (and older than that).

My net property taxes have risen but then fell back to their 1990 levels thanks to our state's property tax rebate program. My day-to-day cash expenses which are mostly food have been fairly stable over the years, bouncing up and down but are now lower than they were in 1990.

My medical expenses have risen a lot in the last 10 years but that is mainly because my employer was paying for more of my insurance in the 1990s than in recent years (and since I ERed I pick up the whole tab).

My co-op's mortgage interest has dropped as they have been paying it down and through refinancing. My commutation expenses rose in the 1990s but dropped in the 2000s as I worked less, then ERed.

Phone, electric, cable, and internet have all risen over the years but I did not have cable and internet the whole time since 1990s. My share of the co-op's electric bill has crept up over the years. My share of the co-op's other common charges has risen a lot over the years, though.

So when I look at my aggregate spending, excluding taxes, it has not risen much if at all. As others here have mentioned, simply changing one's lifestyle has a big effect on canceling out the effects of overall inflation.

 

[Walt34]

I believe part of it too is that by middle age most if not all of the "acquisition phase" is done. That means no or a small house payment, no car payments, the dishes and furniture is bought and paid for.

Not like when I was 24 and living in a one-bedroom apartment with no other furniture than a bed, a sofa, and dining room table with a cheap 4-place setting of Corelware. Getting myself established in a house seemed like a tall hill to climb back then.

 

[marko]

This article confirms what I've suspected for a long time. Thanks!

Overall energy costs are up, but I just bought a nice, nice big flat screen for the same price I did for a TV back in 1970.

 

[grasshopper]

Quicken Retirement planner has 4% as a inflation plug in, and our SRW is 4%. In a hypothetical portfolio of $2 million both are reducing $160K from the balance. This just does not show up in my own real life withdrawals. I know inflation is a phantom guest at the party, but I set the place, and I don't think they came.

 

[audreyh1]

My 12 year experience with personal inflation/spending after retiring is detailed in this post:

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

My spending only went up 2.3% comparing year 12 to year 1, and over the comparative 11 year period (not counting year 1 since that's the reference) cumulative inflation was up almost 30%. No way have we seen that kind of increase personally.

Like others, I have had various parts of my annual expenses shift around quite a bit over the years, but my overall spending stay more or less flat.

 

[LakeTravis]

I dug a little deeper into my own details and discovered:

In 1990 I bought a new Mazda Navajo two-door SUV for $18K
In 2011 I bought a new Kia Sportage four-door SUV for $21K

In 1990 I bought a 32" Sony television for $800
In 2012 I bought a 50" LCD flat screen for $800

In 1990 I was paying 95 cents for a loaf of Mrs. Bairds bread
in 2012 I'm paying $1.12 for a loaf of store brand

In 1990 I was paying $2.50 for a pint of Ben & Jerry's
In 2012 I'm paying $2.25 for a pint of Blue Bell

In 1990, I was paying 11 cents per sf for electricity, water, gas, trash. and sewer
In 2012, I'm paying 9 cents per sf for electricity, water, gas, trash, and sewer

In 1990 I spent $3500 on a week in Vegas
In 2011 I spent $3800 on a week in Disney World

A gadget freak like me will always benefit from the falling costs of electronics, but for everything else it's been a matter of personal choices.

 

[Meadbh]

That might sound a little better, but looking back I should have been able to accomplish the task in a more fiscally prudent manner

What was the return on investment?

 

[Mulligan]

What was the return on investment?

Better than average market returns by far, but after deducting management fees and transaction costs it was a tremendous money losing investment!

 

[NW-Bound]

I wonder if many of us have been sliding down the Bernicke's spending slope without realizing it. Bernicke observed that spending in the aggregate goes down as people get older, starting as early as the mid 50s (gasp! I am there already). It is debatable whether the reduction is voluntary or by necessity. I think it is a mixture of both.

Even people who can afford it tend to spend less as time goes on. I have observed that with my own mother. Due to my RV travel interest, I followed the blogs of some full-time RV'ers. So many of them slowed down after several years of extensive traveling. Some stopped traveling and blogging altogether. I bet their expenses would go down quite a bit. Would they spend the extra travel money to go out to eat everyday, or to keep shopping at Neiman Marcus? Somehow I doubt it. Even at my age, I already find myself not interested in a lot of "stuff".

 

[NW-Bound]

Better than average market returns by far, but after deducting management fees and transaction costs it was a tremendous money losing investment!

While you took the approach of investing in high-growth stocks plus possibly high portfolio turnover, I did the value investing approach. Bought and never sold. Seems to work well so far.

In the late 70s, while I was still in graduate school and working part-time at an internship, my wife was working full-time. We were not married then, but living within a block of each other. For a time, my car broke down and while I was trying to fix it (you wouldn't think a poor student would be able to afford a mechanic, would you?), I even had to borrow my future wife's car to go to work. She was carpooling with her coworker then, and did not need her car.

Wasn't that leveraged investing or what?

 

[samclem]

Not like when I was 24 and living in a one-bedroom apartment with no other furniture than a bed, a sofa, and dining room table with a cheap 4-place setting of Corelware.

Hey, don't "dis" the Corelware! They are still our daily dishes (though we've bought several sets so we only need to run the dishwasher every few days). They look okay, stack well to save space, are almost unbreakable--perfect!

 

[Mulligan]

While you took the approach of investing in high-growth stocks plus possibly high portfolio turnover, I did the value investing approach. Bought and never sold. Seems to work well so far.

In the late 70s, while I was still in graduate school and working part-time at an internship, my wife was working full-time. We were not married then, but living within a block of each other. For a time, my car broke down and while I was trying to fix it (you wouldn't think a poor student would be able to afford a mechanic, would you?), I even had to borrow my future wife's car to go to work. She was carpooling with her coworker then, and did not need her car.

Wasn't that leveraged investing or what?

Buy and hold "investing" for the long term is indeed the best investment philosophy!

 

[W2R]

Hey, don't "dis" the Corelware! They are still our daily dishes (though we've bought several sets so we only need to run the dishwasher every few days). They look okay, stack well to save space, are almost unbreakable--perfect!

I use Corelleware too. I have what I think is one of the least ugly patterns, the iris pattern below, though all of them are ugly IMO. Still, they are very light and I like that a lot. Plus, I like the fact that they seldom break. The fact that they are cheap isn't lost on me, either.

I was looking at dishes on Amazon earlier this week, but didn't see any prettier ones that looked as light in weight and unbreakable as Corelleware.

 

[NW-Bound]

Buy and hold "investing" for the long term is indeed the best investment philosophy!

Well, it does not always work.

You do not want to hold "something" like Enron until bankruptcy. Guess I am lucky.