Spending as retirement progresses.

[nun]

Has there been any research to determine how the personal level of inflation in retirement is related to inflation in the general economy and how it evolves with age? I use a flat 3% inflation level for my model, but I imagine that the actual inflation in my spending will be less than that of the general economy as I get older.

 

[rescueme]

...I imagine that the actual inflation in my spending will be less than that of the general economy as I get older.

It could, or could not be. It all depends on the categories of what you spend your retirement dollars.

I've been retired just under five years (and yes, I love it!). However, my PROI (Personal Rate of Inflation) has been under what has been declared by the government in such items as SS (which I don't get at the current time), VA disability income (which I do get).

It's not only what is the "published rate of infation", reference:
http://www.inflationdata.com/inflation/inflation_rate/HistoricalInflation.aspx
but also how you spend your money IRL (in real life).

I'm just giving you a response, based upon my actual retirement situation. If you wish (for planning purposes) consider that you will spend less, so be it. OTOH, I've always "planned for the worst, and hoped for the best"; therefore I used pre-retirement current inflation rates in my planning.

Just my $.02.

 

[Mulligan]

Has there been any research to determine how the personal level of inflation in retirement is related to inflation in the general economy and how it evolves with age? I use a flat 3% inflation level for my model, but I imagine that the actual inflation in my spending will be less than that of the general economy as I get older.

That is a very interesting question with both short term and long term variables, and I believe depending on each persons unique reference point would ultimately determine the reponse. For example, I believe that energy and health costs have been the driving costs of recent inflation. If that continued and you had major expenses in those two areas inflation rate could actually be higher. If you dont then it could be lower. For me, in the short term, my inflation rate has been lower than 3%, but like you when I do long term planning that is the number I have used. It seems based on my frequent readings of posts here that members in the past threads have mentioned that their costs have been lower than inflation rate ( not counting HI). Whether that is because they become better at controlling costs because they have time to research things, I do not know. I do know that I have controlled costs by being more efficient, without "suffering". I know I have kind of blended "expenses" with "inflation", but I imagine many others do also to avoid the true inflation rate.

 

[TromboneAl]

Let's all use the same terms. How I see it:

Inflation refers to the cost of stuff, and is independent of how much one spends. Personal inflation refers to the cost of stuff that YOU buy. You may talk about inflation in your spending, but that is neither inflation nor personal inflation.

 

[scrabbler1]

In my retirement budget spreadsheet, I separated medical expenses from everything else so I could assign a single (higher) inflation rate for the former than for the latter.

That being said, my non-medical expenses saw a spike in 2010 because I had a large, unexpected cap gains distribution from a bond fund and that spiked my income taxes owed. Kinda mucked up things in my spreadsheet temporarily.

 

[Birchwood]

Inflation affects you only when you absolutely have to buy or spend on something. Certainly the cost of food, medicine, and health care will inflate in time.
I think you can beat inflation by buying stuff you only absolutely need that are on discount and out of season like clothes.
Obviously if you have kids in college, that's a big inflation there. Or if you're fond of trading cars often.

The challenge for retirees is to find out how to spend their time and have
fun with minimum of consumption. Obviously, there will still be some coincidental expenses, but if they focus on doing things rather than buying stuff, inflation should not be that much of a problem.

 

[W2R]

For me, unusual and irregular expenses of the type that we all have and budget for have created a much greater disparity in my total annual expenses from year to year than has inflation. So, this has masked inflation. This is my third year of retirement, and I would expect that the effects of inflation will seem much more apparent after 10 or 20 years.

 

[scrabbler1]

For me, unusual and irregular expenses of the type that we all have and budget for have created a much greater disparity in my total annual expenses from year to year than has inflation. So, this has masked inflation. This is my third year of retirement, and I would expect that the effects of inflation will seem much more apparent after 10 or 20 years.

Besides what I posted about income tax spikes resulting from income spikes (not that that type of expense increase is bad, of course!), I agree with you. For example, in just the first week of 2012, I have charged more on my credit card than I did in all of 2011! I bought a new PC to replace my ailing, 10-year-old one and the $400 I spent on it was more than I spent on my CC in all of 2011, a year in which I had nearly zero unusual or irregular expenses (and the not totally unwelcome cap gains spike I had in 2010 was far smaller in 2011).

 

[rescueme]

In my retirement budget spreadsheet, I separated medical expenses from everything else so I could assign a single (higher) inflation rate for the former than for the latter.

That's logical, and follows the forcast informaton provided by Fidelity's RIP (Retirement Income Planning) software, which increases the category of medical expenses (assuming you use the full retirement expense module) by 7% vs. whatever the current "inferred" rate (about 2.3%, if I remember correctly) for across-the-board expenses.

As for my personal opinion (even though it counts for nothing ), you are proper in planning in this manner....

 

[NW-Bound]

For the first few years of ER, I would expect people to go crazy with buying toys like RV, spending on travel, or even if one is the homebody type, spending on home improvements, etc... Usually, the typical ER'ee is the 'deferred gratification' type, and if retirement is not the time to self-gratify, then when?

I suspect it may take 5 years or longer until one settles down to a routine.

For me, unusual and irregular expenses of the type that we all have and budget for have created a much greater disparity in my total annual expenses from year to year than has inflation. So, this has masked inflation. This is my third year of retirement, and I would expect that the effects of inflation will seem much more apparent after 10 or 20 years.

The wild variation in annual spending as reported by various posters in this thread was exactly what I expected.

As for myself, by using training wheels (ESR) before I stop working completely, I have time and money to get myself the toys (2nd home and RV), get the kids out of college, and watch my expenses for a few years to see how it is going to work. Oh, and work can be fun too (and profitable at the same time).

 

[MichaelB]

Has there been any research to determine how the personal level of inflation in retirement is related to inflation in the general economy and how it evolves with age? I use a flat 3% inflation level for my model, but I imagine that the actual inflation in my spending will be less than that of the general economy as I get older.

I haven't seen anything specific to inflation and age group, but the BLS has lots of data and papers and makes for interesting browsing. The consumer expenditures survey looks at income and spending by age group, and if you track historical data you may find something. BLS here Overview of BLS Statistics on Inflation and Prices

 

[scrabbler1]

That's logical, and follows the forcast informaton provided by Fidelity's RIP (Retirement Income Planning) software, which increases the category of medical expenses (assuming you use the full retirement expense module) by 7% vs. whatever the current "inferred" rate (about 2.3%, if I remember correctly) for across-the-board expenses.

As for my personal opinion (even though it counts for nothing ), you are proper in planning in this manner....

Being a Fido client, that is probably where I got the idea to create two expense columns in my spreadsheet. I recall being exposed to Fido's RIP in late 2007 or early 2008 which was when I was developing my ER budget and the main spreadsheet. I also recall not having the twin expense columns originally but do not remember then I made that helpful switch. I included other elements of the Fido RIP program into my main spreadsheet at that time which greatly helped me plan my ER in late 2008 and gave me the confidence I was working out the numbers well.

I do appreciate your affirmation.

 

[Midpack]

Evidently the BLS actually (back) calculated a CPI-E (Elderly) from 1982-2007, here's a link with more info http://www.bls.gov/opub/mlr/2008/04/art2full.pdf [-]for those who haven't already made up their minds[/-]. FWIW

 

[MichaelB]

Evidently the BLS actually (back) calculated a CPI-E (Elderly) from 1982-2007, here's a link with more info http://www.bls.gov/opub/mlr/2008/04/art2full.pdf [-]for those who haven't already made up their minds[/-]. FWIW

That is an interesting link and seems to address the original post, at least in part. Thanks! The summary

Over the 25 years from December 1982 to December 2007, the experimental consumer price index for Americans 62 years of age and older (CPI-E) rose somewhat faster than the CPI-U and the CPI-W, mainly because prices for medical care and shelter, which are weighted more heavily in the CPI-E, increased more rapidly than overall inflation during the period

CPI-W is 3%, CPI-U is 3.1% and their estimated CPI-E (elderly) is 3.3% over the period 1982 through 2007. A hefty difference and something to keep in mind.

 

[M Paquette]

Evidently the BLS actually (back) calculated a CPI-E (Elderly) from 1982-2007, here's a link with more info http://www.bls.gov/opub/mlr/2008/04/art2full.pdf [-]for those who haven't already made up their minds[/-]. FWIW

Interesting article. They attribute much of the difference to the elderly spending a higher portion of available income on health care (no surprise), and heating oil (huh! Less tolerant of cold, perhaps?).

 

[Mulligan]

Interesting article. They attribute much of the difference to the elderly spending a higher portion of available income on health care (no surprise), and heating oil (huh! Less tolerant of cold, perhaps?).

I believe that. 10 years ago when I would visit my dad in the winter, I would always wear a sweatshirt. Now that he is 75, I feel like I need to change into my swim wear when I get there. He definitely is less tolerant of the cold, now.

 

[Chuckanut]

I expect travel will be a big part of my personal inflation after I retire. I figure I am at my healthiest for the next 10 years, then we will see. I may be decrepit or I may be like my 80 year old neighbor who, seeing the downed tree branches, is out chain sawing firewood in the snow.

 

[haha]

Interesting article. They attribute much of the difference to the elderly spending a higher portion of available income on health care (no surprise), and heating oil (huh! Less tolerant of cold, perhaps?).

Home all day.

Ha

 

[rescueme]

I expect travel will be a big part of my personal inflation after I retire.

Why isn't it now?

Just asing, since our biggest expense - both before and after retirement, is travel and it hasen't increased our PROI ioata.

Don't regret not being able to go places (due to health or other extremes) by waiting for retirement.

In our case, travel expenses have not increased at all, since they have been always part of our expenses.

Just our POV.

 

[Bestwifeever]

You could also dig around on the AARP site for research they might have done or that they highlight from other sources (not saying it will be objectively presented).

 

[rescueme]

(not saying it will be objectively presented).

 

[growing_older]

There seem to be plenty of opinions on the subject of spending patterns in a long retirement. Most studies I have seen conclude that spending levels off or drops as one ages, but I am not convinced that these studies properly accounted for limitations in the means of the retirees. If you spend down your assets, then your spending will have to reduce to the new limitations of your means. On the other hand, all the older people I know well enough to know about their spending, tended to increase spending as they aged if they could afford it. Medical care certainly, but also hiring help to do things they used to do for themselves, travel continued but at more full service places and less off the beaten path, more spending on convenience. Now maybe that was the spending adjusting to the means in the other direction, but for my own planning, I'd rather be able to increase spending if I want, than be required to reduce spending whether I want to or not.

 

[NW-Bound]

... but for my own planning, I'd rather be able to increase spending if I want, than be required to reduce spending whether I want to or not.

While I hope to have the means to continue the same spending as I do now, just from reading blogs of people who are happy with much less I have come to realize that much of the stuff I am accustomed to is just fluff, even though I am not an extravagant guy.

I often wonder if many posters, myself included, are just worrywarts. Look around, I see so many people living on much less. They would not understand the problems that we are so concerned with.

 

[Midpack]

I often wonder if many posters, myself included, are just worrywarts. Look around, I see so many people living on much less. They would not understand the problems that we are so concerned with.

Probably, but uncertainty does that to people, human nature. Projecting longevity, inflation, returns, expenses for 30-40 years is a tough proposition IMHO...

 

[NW-Bound]

Yes. Hence, I find solace in reading about how people could live with much less. For the lack of means, they make up for it with being more resourceful. And they evidently lead a healthy and happy life.

Like Uncle Mick likes to say, we need to be agile, and hostile I would like to think I could, if it comes to that.

And by the way, along with my parents, I have been through some rough economic time in my late teen years. Over the years, I think I have forgotten the survival skills, and became skittish over a little recession here and there... How did I turn into the princess and the pea, as mentioned by Ha in a recent post?