Trying to Understand????
- Thread starter scoopsteve
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My FIL retired in 1979 after 30 years at General Motors. His combined SS/GM pension came to slightly under $2000 a month. At the time ,
that was double what my husband made as a math teacher. I remember thinking how Dad would have a comfortable retirement, and he did until Alzheimer's came along in 1984. Now $2000 would be difficult to live on and certainly not comfortable. Inflation is what keeps me up at night.
that was double what my husband made as a math teacher. I remember thinking how Dad would have a comfortable retirement, and he did until Alzheimer's came along in 1984. Now $2000 would be difficult to live on and certainly not comfortable. Inflation is what keeps me up at night.
cute fuzzy bunny
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Marshac...I think the reason for the variance has something to do with formula dampness from the WA state area, and the fact that those there seahawks was robbed! 
It's been a long time since math class, but the formula for calculating the future cost of an item given it's current price, the number of years in the future and the rate of inflation is;
future cost = current cost *(1.0 + inflation rate [as a decimal])**number of years
current monthly fuel expense = $200.00
inflation rate = 3.5% [0.035 in decimal form]
number of years = 10
future cost = $200.00 *(1.0 + 0.035) **10
= $200.00 *(1.035)**10
= $200.00 *1.410
= $282.11
another way of looking at it
today the cost is $200.00
@ 1 year the cost is $200.00*1.035 =$207.00
@ 2 year the cost is $207.00*1.035 =$214.25
@ 3 year the cost is $214.25*1.035 =$221.75
@ 4 year the cost is $221.75*1.035 =$229.51
@ 5 year the cost is $229.51*1.035 =$237.54
@ 6 year the cost is $237.54*1.035 =$245.85
@ 7 year the cost is $245.85*1.035 =$254.46
@ 8 year the cost is $254.46*1.035 =$263.36
@ 9 year the cost is $263.36*1.035 =$272.58
@ 10 year the cost is $272.58*1.035 =$282.11
I believe this article was posted a while back, it's from the journal of Financial Planning -- and I beleive it makes some very valid points.
http://www.fpanet.org/journal/articles/2005_Issues/jfp0605-art7.cfm
dwk
future cost = current cost *(1.0 + inflation rate [as a decimal])**number of years
current monthly fuel expense = $200.00
inflation rate = 3.5% [0.035 in decimal form]
number of years = 10
future cost = $200.00 *(1.0 + 0.035) **10
= $200.00 *(1.035)**10
= $200.00 *1.410
= $282.11
another way of looking at it
today the cost is $200.00
@ 1 year the cost is $200.00*1.035 =$207.00
@ 2 year the cost is $207.00*1.035 =$214.25
@ 3 year the cost is $214.25*1.035 =$221.75
@ 4 year the cost is $221.75*1.035 =$229.51
@ 5 year the cost is $229.51*1.035 =$237.54
@ 6 year the cost is $237.54*1.035 =$245.85
@ 7 year the cost is $245.85*1.035 =$254.46
@ 8 year the cost is $254.46*1.035 =$263.36
@ 9 year the cost is $263.36*1.035 =$272.58
@ 10 year the cost is $272.58*1.035 =$282.11
I believe this article was posted a while back, it's from the journal of Financial Planning -- and I beleive it makes some very valid points.
http://www.fpanet.org/journal/articles/2005_Issues/jfp0605-art7.cfm
dwk
I with yippe ki o on this one. Some thoughts:
If your total monthly spend is $5K and your mortgage is $1k, then your mortgage is paid off, wouldn'nt this offset a number of years of inflation at a 3% rate.
Can't one eat 3% less each year or realize 3% less in food saving's with productivity improvements - same for energy, cable, phone etc. My phone bill is less than 50% what it was 10 years ago.
I know there are some areas with no answer - heath care for one.
Anyway - I don't think its a slam dunk to blindly expect all costs will double every 15 years.
If your total monthly spend is $5K and your mortgage is $1k, then your mortgage is paid off, wouldn'nt this offset a number of years of inflation at a 3% rate.
Can't one eat 3% less each year or realize 3% less in food saving's with productivity improvements - same for energy, cable, phone etc. My phone bill is less than 50% what it was 10 years ago.
I know there are some areas with no answer - heath care for one.
Anyway - I don't think its a slam dunk to blindly expect all costs will double every 15 years.
Rustic23
Thinks s/he gets paid by the post
Long term inflation in the U.S. has been 3.5% and as I believe Brewster 5% in the last 30 years. This would be a doubling in 15 years instead of every 20. That does not mean, however, ones expenses must double. If you change you standard of living i.e. eat 3% less you will be able to control your cost. 
On the CPI, I have often pondered the line of thought that said that it is overstated because of substitution. i.e. if beef goes up in price, people substitute chicken, and therefore their COLA should not be adjusted. If that is true when chicken goes up we could substitute fish. In ten years all of the seniors in the U.S. living on SS will be eating delicious fish dinners (Friskies, Harts, Purina One) and their standard of living will have not changed. They will also be able to substitute Salvation Army Stores, for Wal-Mart, which they substituted for Macy’s. They will also have a lovely tent to hang those fine things in. The economist will be able to sit back and say ‘Isn’t the SS cola great, all those seniors maintaining their standard of living! I didn’t mention the wonderful $200,000 bus they will get to ride in instead of their $50,000 SUV, and that will make the environmentalist happy.
On the CPI, I have often pondered the line of thought that said that it is overstated because of substitution. i.e. if beef goes up in price, people substitute chicken, and therefore their COLA should not be adjusted. If that is true when chicken goes up we could substitute fish. In ten years all of the seniors in the U.S. living on SS will be eating delicious fish dinners (Friskies, Harts, Purina One) and their standard of living will have not changed. They will also be able to substitute Salvation Army Stores, for Wal-Mart, which they substituted for Macy’s. They will also have a lovely tent to hang those fine things in. The economist will be able to sit back and say ‘Isn’t the SS cola great, all those seniors maintaining their standard of living! I didn’t mention the wonderful $200,000 bus they will get to ride in instead of their $50,000 SUV, and that will make the environmentalist happy.
Still don't think we should blindly accept gov't inflation numbers and create an environment where we think we have no control over our own productivity improvements. My one data point is that l I know is that after the mortgage is paid in two years my monthly spend will be about where it was in 1989 despite having 3 kids today and none then.
Forget both the bus and SUV, take a walk, ride a bike, improve your overall health, this could be an improvement. I sincerely do not mean to offend any seniors who may not be in a position to do this - just trying some different thinking.
Forget both the bus and SUV, take a walk, ride a bike, improve your overall health, this could be an improvement. I sincerely do not mean to offend any seniors who may not be in a position to do this - just trying some different thinking.
astromeria
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The official govt figures for inflation are based on a "basket of goods and services" that probably reflects nobody's actual reality.
From a govt web site ( http://www.bls.gov/cpi/cpifaq.htm#Question_6 -- lots of info with links to more):
The CPI frequently is called a cost-of-living index, but it differs in important ways from a complete cost-of-living measure.
...
The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.
...
FOOD AND BEVERAGES (breakfast cereal, milk, coffee, chicken, wine, service meals and snacks)
HOUSING (rent of primary residence, owners' equivalent rent, fuel oil, bedroom furniture)
APPAREL (men's shirts and sweaters, women's dresses, jewelry)
TRANSPORTATION (new vehicles, airline fares, gasoline, motor vehicle insurance)
MEDICAL CARE (prescription drugs and medical supplies, physicians' services, eyeglasses and eye care, hospital services)
RECREATION (televisions, pets and pet products, sports equipment, admissions);
EDUCATION AND COMMUNICATION (college tuition, postage, telephone services, computer software and accessories); <what, no Internet access?!>
OTHER GOODS AND SERVICES (tobacco and smoking products, haircuts and other personal services, funeral expenses).
Also included within these major groups are various government-charged user fees, such as water and sewerage charges, auto registration fees, and vehicle tolls. In addition, the CPI includes taxes (such as sales and excise taxes) that are directly associated with the prices of specific goods and services. However, the CPI excludes taxes (such as income and Social Security taxes) not directly associated with the purchase of consumer goods and services.
The CPI does not include investment items, such as stocks, bonds, real estate, and life insurance. (These items relate to savings and not to day-to-day consumption expenses.)
For each of the more than 200 item categories, using scientific statistical procedures, the Bureau has chosen samples of several hundred specific items within selected business establishments frequented by consumers to represent the thousands of varieties available in the marketplace. For example, in a given supermarket, the Bureau may choose a plastic bag of golden delicious apples, U.S. extra fancy grade, weighing 4.4 pounds to represent the Apples category.
============
I find this fascinating! For example, they inlcude the cost of funerals but not the cost of weddings, investing, repairs, home remodeling, legal services, cleaning help, nursing home/assisted living, or vacations. They include the cost of renting a single ramily house, but not the cost of buying (or selling) one or the property taxes or HOA fees, or even Social Security taxes. Not to mention that as one ages, one generally needs more convenience items and services--especially more heat as I'm finding with my 80-yr-old mother (who keeps her house at 78 all winter).
The CPI seems unsatisfacotry for the purpose we put it to (retirement financial planning). I'm glad this topic came up. I've been using 4% as my inflation rate, but I'm gonna switch to 5 or 6%.
From a govt web site ( http://www.bls.gov/cpi/cpifaq.htm#Question_6 -- lots of info with links to more):
The CPI frequently is called a cost-of-living index, but it differs in important ways from a complete cost-of-living measure.
...
The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.
...
FOOD AND BEVERAGES (breakfast cereal, milk, coffee, chicken, wine, service meals and snacks)
HOUSING (rent of primary residence, owners' equivalent rent, fuel oil, bedroom furniture)
APPAREL (men's shirts and sweaters, women's dresses, jewelry)
TRANSPORTATION (new vehicles, airline fares, gasoline, motor vehicle insurance)
MEDICAL CARE (prescription drugs and medical supplies, physicians' services, eyeglasses and eye care, hospital services)
RECREATION (televisions, pets and pet products, sports equipment, admissions);
EDUCATION AND COMMUNICATION (college tuition, postage, telephone services, computer software and accessories); <what, no Internet access?!>
OTHER GOODS AND SERVICES (tobacco and smoking products, haircuts and other personal services, funeral expenses).
Also included within these major groups are various government-charged user fees, such as water and sewerage charges, auto registration fees, and vehicle tolls. In addition, the CPI includes taxes (such as sales and excise taxes) that are directly associated with the prices of specific goods and services. However, the CPI excludes taxes (such as income and Social Security taxes) not directly associated with the purchase of consumer goods and services.
The CPI does not include investment items, such as stocks, bonds, real estate, and life insurance. (These items relate to savings and not to day-to-day consumption expenses.)
For each of the more than 200 item categories, using scientific statistical procedures, the Bureau has chosen samples of several hundred specific items within selected business establishments frequented by consumers to represent the thousands of varieties available in the marketplace. For example, in a given supermarket, the Bureau may choose a plastic bag of golden delicious apples, U.S. extra fancy grade, weighing 4.4 pounds to represent the Apples category.
============
I find this fascinating! For example, they inlcude the cost of funerals but not the cost of weddings, investing, repairs, home remodeling, legal services, cleaning help, nursing home/assisted living, or vacations. They include the cost of renting a single ramily house, but not the cost of buying (or selling) one or the property taxes or HOA fees, or even Social Security taxes. Not to mention that as one ages, one generally needs more convenience items and services--especially more heat as I'm finding with my 80-yr-old mother (who keeps her house at 78 all winter).
The CPI seems unsatisfacotry for the purpose we put it to (retirement financial planning). I'm glad this topic came up. I've been using 4% as my inflation rate, but I'm gonna switch to 5 or 6%.
cute fuzzy bunny
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
I guess you're hosed if you're a teetotaler vegetarian in a warm climate in good health that doesnt drive or rent.
They include funerals but none of the others because the only common denominator you can count on is that we're all going to need a funeral.
Even Unclemick, although I think we should all chip in and give him the viking sendoff he really wants. Hopefully thats a long time from now.
I *wish* I could find the web site I saw about a year ago where a guy took a fixed basket of goods that seemed very reasonable (well, to me), kept them static and tracked the cost for about 30-40 years. He came up with an inflation rate about a percent higher than CPI. Before he left, Greenspan (porn name: Don Nutz, see http://www.jasonschock.com/gangsta/porn_name.php ) said he thought CPI OVERstated real inflation by a point.
Of course, inflation will vary depending on who you are, where you live and what you buy. And whether you think the practice of substituting inferior quality products because the ones you were buying got too expensive is a reasonable way to measure real cost changes :
They include funerals but none of the others because the only common denominator you can count on is that we're all going to need a funeral.
Even Unclemick, although I think we should all chip in and give him the viking sendoff he really wants. Hopefully thats a long time from now.
I *wish* I could find the web site I saw about a year ago where a guy took a fixed basket of goods that seemed very reasonable (well, to me), kept them static and tracked the cost for about 30-40 years. He came up with an inflation rate about a percent higher than CPI. Before he left, Greenspan (porn name: Don Nutz, see http://www.jasonschock.com/gangsta/porn_name.php ) said he thought CPI OVERstated real inflation by a point.
Of course, inflation will vary depending on who you are, where you live and what you buy. And whether you think the practice of substituting inferior quality products because the ones you were buying got too expensive is a reasonable way to measure real cost changes :
bosco
Full time employment: Posting here.
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mathjak107 said:
computers--they are much cheaper now than 20 years ago, especially if you consider their power. I bought a Mac SE/30 in about 1990. Cost about $5,000 with an 80MB hard drive (huge back then). I can get a decent desktop for under $1,000 with much more power.
long distance phone rates. Much cheaper now.
basically, most things electronic are cheaper--TVs, etc.
seems like air fares might be a bit cheaper too, but not sure about that, especially now that the price of fuel is figuring in bigtime.
unfortunately, these things obviously don't make up for the hefty price increases on everything else.
I was helping a buddy shop for new cars a few weeks ago, something I had not done for 10 years. I could not believe just how inexpensive and high quality new cars have gotten. They are cheaper now in nominal dollars than 10 years ago, let alone inflation-adjusted dollars. It even moved me away from my always buy used stance. They have gotten cheaper and better so much faster that it makes it harder to find a good used car deal for a car more than 3 or 4 years old. He ended up paying $18K for an awesome new car, same brand as my own, which is way better in every comparison than the car I paid $22.5K for 10 years ago (which is something like 29K in today's dollars).
Kramer
Kramer
