What Inflation Rate Will You Use for 2008?

[daloanboy]

Not going to st lucia for 4 weeks this year. Spending 12 weeks in Spain instead.

Annual spending just went down 10% as a result

[TromboneAl]

I'm not sure why we're getting a lot who say "around 0%" and a lot who say "around 3%." Perhaps people are misreading the chart, as I did until Fired@51 made me realize my mistake.

If you want to see how much prices increased in 2008, you'd look at the December number, which compares prices in Dec 2008 with those in Dec 2007 (they were .1% higher). You don't look at the average inflation rate for 2008 (3.85%).

I agree I wasn't that clear in the question. It should have gone more like this:

If you increase your spending allowance for the 2009 based on the inflation rate for the prior year (2008), what inflation rate are you using for 2008?

[RonBoyd]

Quote:

Originally Posted by TromboneAl I agree I wasn't that clear in the question. It should have gone more like this: If you increase your spending allowance for the 2009 based on the inflation rate for the prior year (2008), what inflation rate are you using for 2008?

In other words, you are looking for a response along the lines of "So the Inflation rate for 2008 was 3.85%. Well, despite that, I will use 10% to calculate my 2009 draw." (not my actual numbers.) Is that it?

[dex]

Quote:

Originally Posted by TromboneAl I agree I wasn't that clear in the question. It should have gone more like this: If you increase your spending allowance for the 2009 based on the inflation rate for the prior year (2008), what inflation rate are you using for 2008?

I'm still unsure what info you are wanting.

2008 spending was 15.06% LESS than 2007
2009 pending is estimated to be .083% more than 2008 spending - so my imputed inflation rate is .083%

I have a line item budget - some rates 0%; some much higher e.g. Health Ins.

[Moemg]

I can see why their are so many zeros but I wonder who has the guts to increase by 7 or 8 % . That's just too gutsy for me ! I actually decreased my spending allowance for this year which is fine because I never spend all of it anyway .

[ziggy29]

Quote:

Originally Posted by Moemg I can see why their are so many zeros but I wonder who has the guts to increase by 7 or 8 % . That's just too gutsy for me ! I actually decreased my spending allowance for this year which is fine because I never spend all of it anyway .

Maybe someone who has a low burn-rate on their portfolios (i.e. less than 3% or so) who would like to take advantage of some deals from desperate sellers...

[Bikerdude]

Quote:

Originally Posted by TromboneAl I'm not sure why we're getting a lot who say "around 0%" and a lot who say "around 3%." Perhaps people are misreading the chart, as I did until Fired@51 made me realize my mistake. If you want to see how much prices increased in 2008, you'd look at the December number, which compares prices in Dec 2008 with those in Dec 2007 (they were .1% higher). You don't look at the average inflation rate for 2008 (3.85%). I agree I wasn't that clear in the question. It should have gone more like this: If you increase your spending allowance for the 2009 based on the inflation rate for the prior year (2008), what inflation rate are you using for 2008?

So what you really want to know is:


If you increase your spending allowance for the 2009 based on the inflation rate for the prior year (2008), what inflation rate are you using for 2008 the year over year rate of .1% or the average rate of 3.85%?

[daloanboy]

Inflation is completely meaningless for anyone who enjoys discretionary spending. It is a complete disaster for anyone who does not have discretionary spending. In a bad year the former will trade down to a cheaper restaurant - the latter will eat less.

The answers to the question, while interesting, therefore offer no insight.

[TromboneAl]

Gosh, this has gotten complicated.

My plan is this: Start at 4% of my net worth at retirement, and increase my withdrawal each year by a percentage equal to inflation. So, if I started with $50,000 in the first year, and inflation was 2% in that year, then the next year, I'd give myself an allowance of $51,000.

If I use this system, then I will know the probability of my money lasting throughout my lifetime.

So, the question is: what inflation rate should I use for 2008? A lot of people complain that the official CPI inflation rate is rigged or inappropriate. Perhaps they use an inflation rate from some other source. So, each year I try to get a sense of what value people are using.

The kind of response I'm looking for is:

"Although the official CPI inflation rate is .1%, I used this calculator to determine my personal inflation rate, which turned out to be 2.4%."

Although my spending will likely be wildly different from my spending allowance, by keeping track of how much I'm allowed and how much I actually spend, I can get a feeling for where I stand.

[RonBoyd]

Quote:

Originally Posted by TromboneAl The kind of response I'm looking for is: "Although the official CPI inflation rate is .1%, I used this calculator to determine my personal inflation rate, which turned out to be 2.4%." Although my spending will likely be wildly different from my spending allowance, by keeping track of how much I'm allowed and how much I actually spend, I can get a feeling for where I stand.

Didn't we go through this last spring:

http://www.early-retirement.org/foru...ion-34941.html

In Post #166, I posted some links that were useful (well, back then anyway).

Or am I still off track?

[dex]

Quote:

Originally Posted by TromboneAl My plan is this: Start at 4% of my net worth at retirement, and increase my withdrawal each year by a percentage equal to inflation. So, if I started with $50,000 in the first year, and inflation was 2% in that year, then the next year, I'd give myself an allowance of $51,000. If I use this system, then I will know the probability of my money lasting throughout my lifetime.

What % do you use for all future years - until death?

My method is to track my actual spending; prepare a line item budget - adjust for unusual items - and increase the the budget total by 4% for all years. There are a few years that a year is adjusted for major purchases - like a new truck.
This answers the expense side of the question - do I have enough?

[Bikerdude]

Quote:

Originally Posted by TromboneAl Gosh, this has gotten complicated.

OK, I'll go back to my original rate of 1% to account for increased taxes. I find inflation in taxes and health care to be the two items that are difficult to adjust to. Health care went down for 2009 and taxes went up, everything else I can adjust to (chicken instead of beef) so I will need 1% more to pay taxes in 2009. My general spending plan in retirement is not to adjust for inflation during down market years, however, I'm cheating a bit in 2009.

[Moemg]

Quote:

Originally Posted by TromboneAl Gosh, this has gotten complicated. My plan is this: Start at 4% of my net worth at retirement, and increase my withdrawal each year by a percentage equal to inflation. So, if I started with $50,000 in the first year, and inflation was 2% in that year, then the next year, I'd give myself an allowance of $51,000. .

I retired in 2007 with a much larger net worth then I have now thanks to the market meltdown . I can just not pull the trigger on using that original amount and then add inflation to it . I would be too afraid I'd be eating cat food in my nineties. Am I the only gutless forum member ?

[FurBall]

I take the official CPI and subtract 1%. Then I apply that to last year's actual rather than last year's budget because actuals are always significantly lower than budget.

I can't stand the thought of eating cat food either, so this year the formula goes out the window and we will go for 0%.

[Purron]

Quote:

Originally Posted by FurBall I can't stand the thought of eating cat food either

What's wrong with cat food? Oh yea, you're not a cat--Eddie

[RonBoyd]

Quote:

Originally Posted by FurBall; I can't stand the thought of eating cat food either ...

Yeah, like most animals, they taste better than what they eat.

Kittens.jpg

[Architect]

What, no negative inflation rate choices? You guys are ever the optimists ...

[daloanboy]

Like i say - no such thing as inflation if you have dscretionary spend. Food goes up: buy mince not steak.

Most people dictate their inflation rate by their lifestyle choices.

[REWahoo]

Quote:

Originally Posted by daloanboy Like i say - no such thing as inflation if you have dscretionary spend. Food goes up: buy mince not steak. Most people dictate their inflation rate by their lifestyle choices.

And when you've discretionary spent to the point of eating govt. cheese and cat food - and the price of cat food goes up - then what?

[Amethyst]

I hesitate to jump in, since the thread (I think) is more about SWR than perceived inflation...I simply offer, as suspicious evidence of at least some kind of ongoing inflation:

Car Insurance (one 2005 Ford Focus, 2 drivers over 50): Went up from 1000 per year to 1050 per year, by way of a weasel-worded letter from Nationwide that boils down to "And we reduced your benefits, too--but you can buy them back for more $$."

Health Insurance (PPO, govt pays 2/3, employee pays 1/3): Went up from $2400 per year to $2600 per year, with reduced benefits; prescription benefit now has a floor of $65 per prescription for non-generic drugs; last year it was $35 (please note; I am grateful I can get health insurance, when too many have none).

Homeowners Insurance: Went up from $1500 per year ($1000 deductible) to $2000 per year with no increase in benefits or insured value

Services: Last year we paid $95 for a plumber to come to the house. This year, same guy charged $115 just to come out (everything else extra)

Per CNN, Girl Scouts are reducing their cookie boxes by 4 cookies in order to keep prices same as last year (OK, that one has to be CNN's little joke; after all, if you reduced a Girl Scout cookie box by 4 cookies, there would be approximately a 100-calorie snack package left)

Have already weighed in on another thread about the general reduction in size of grocery store packages.

Amethyst