Personal Inflation

[TickTock]

In Your Money Or Your Life, the authors argue that personal inflation has been 0% for them (for the years 1970 to 1991, anyway), and can be for other retirees.

If if IF this is true, it has profound effects on how much to save.

Given that typically 3% inflation is estimated, SWR could go from 4% to 7%. Savings to generate the income would be reduced by 57%!

However, I'm dubious that this is the case in general.

So, those that are ER'd, and in particular those who have been ER'd for a while - what is your personal experience in spending growth

 

[sailor]

I have an opposite problem

For last 10 years my personal inflation rate is around 6%.
Examples here:
http://www.early-retirement.org/forums/f26/looking-suggestions-17710.html#post324239

 

[TickTock]

sailor,

Thanks!!! The linked thread (and links from that thread, and so on ) are interesting reading!

Perhaps a better question would be, "How much does your spending change in ER while maintaining what you consider to be a constant standard of living?"

I find it interesting that (in a link Nords provided on one of the threads) Joe Dominguez (on of the authors of YMOYL) lived on $7,000 in 1969 and $13,000 in 1997. Hang on - let me punch those numbers into the calculator - about 2.25% annual inflation, and apparantly achieved by a declining standard of living!!!

Looks like planning for inflation is a valuable part of the ER plan.

Still interested in personal experiences, though.

 

[aenlighten]

Not sure how I would calculate one

I can calculate how my spending changes over the years, but how much of that is inflation and how much increased or decreased spending? How much due to cost, need, or desire? Gas is easily computed, but am I driving less with more accessories and a longer vehicle life? Food is simple although even there one can buy better, more prepared, and more expensive food. Using a car less it lasts longer but you end up driving an older one so that make it less or more expensive? Then there are the sporadic items which you would have to account for over their lifetime but would take a sizable jump the next time you purchased them, and the other items which you may never replace in your lifetime. It is as difficult for an individual as for an economy.

 

[ziggy29]

In Your Money Or Your Life, the authors argue that personal inflation has been 0% for them (for the years 1970 to 1991, anyway), and can be for other retirees.

If if IF this is true, it has profound effects on how much to save.

This is way suspect. I suspect this is a result of reduced real spending, not living the same lifestyle and buying the same things in 1991 as in 1970.

If you cut *real* spending by 2/3 (say, from $90K to $30K in today's dollars) from 1970 to 1991, you could say your nominal spending increased 0%...but your real spending would be way, way down.

Unless, of course, electronics were regularly half of their budget year after year.

 

[haha]

In Your Money Or Your Life, the authors argue that personal inflation has been 0% for them (for the years 1970 to 1991, anyway), and can be for other retirees.

If if IF this is true, it has profound effects on how much to save.

Yes, and If if IF wishes were horse, then beggars would ride.

Ha

 

[TickTock]

I can calculate how my spending changes over the years, but how much of that is inflation and how much increased or decreased spending? How much due to cost, need, or desire?

Good points, and I think me using the term 'personal inflation' was a bad choice.

A better re-statement would be: "How much does your spending change in ER while maintaining what (to you) is a comparable standard of living?"

Still, given that Joe Dominguez experienced a 2.25% annualized increase in spending from 1969 to 1997, with an apparent lowered standard of living (and 'inflation', according to the article, was 5.33% during the same period (not explicitly stated, but can be derived from numbers in the article)), planning for some increase is prudent, and the 4% SWR is more on less intact...

 

[lazygood4nothinbum]

personal inflation and standards of living are very personal. i plan a future of adventurous travel either by boat or landbased or a combination. this will entail either living on the hook in tropical harbors or renting in developing countries. i will no longer have the stang gt vertible to fill with gas nor the house to maintain in expensive fort lauderdale.

my friends who love to burn bucks all day & night might think i am lowering my standard of living. but i know i can be happier elsewhere and so while i might be reducing my personal inflation, i believe i will be improving my standard of living.

 

[MikeD]

Yes, and If if IF wishes were horse, then beggars would ride.

Ha

That reminds me of my Mom. She'd always say that when we'd say we wished something would happen.

Then when something did happen (to someone else, usually) she'd say "There, but for the grace of God, go I."

My Mom had a saying for every occasion.

Mike D.

 

[Bigritchie]

personal inflation and standards of living are very personal. i plan a future of adventurous travel either by boat or landbased or a combination. this will entail either living on the hook in tropical harbors or renting in developing countries. i will no longer have the stang gt vertible to fill with gas nor the house to maintain in expensive fort lauderdale.

my friends who love to burn bucks all day & night might think i am lowering my standard of living. but i know i can be happier elsewhere and so while i might be reducing my personal inflation, i believe i will be improving my standard of living.

I think true freedom, is breaking the addiction to consumerism, and gathering
experiences instead of stuff.

 

[haha]

That reminds me of my Mom. She'd always say that when we'd say we wished something would happen.

Then when something did happen (to someone else, usually) she'd say "There, but for the grace of God, go I."

My Mom had a saying for every occasion.

Mike D.

I think these are old country sayings. I have a lot of them, but don't share too many here because on the internet they can sound sarcastic. But sarcasm was not their intent; just folk wisdom, and in the case of your Mom's "There but for the grace of God go I", tolerance.

I think overall I have had more help from this sort of thing than from spreadsheets.

I used it in commenting on the OPs post because really, can anyone who has been breathing in the 20th century think that it is possible to live for 20 years without experiencing inflation? Just because something is in a book doesn't make it reasonable, or even possible. I read that same book years ago and thought the guy was a nut. Helpful to remember that we don't know what these gurus lives are really like. and they may have a a vested interest in maintaining that ignorance.

Ha

 

[TickTock]

I thought it unlikely - but hey, why not try to gather a bit of data from the ER group?

 

[cute fuzzy bunny]

Because its probably one of the most overlooked and most crucial aspects of early retirement.

We focus hard on cutting our fund expenses by a .5-1%. We work hard on asset allocations to squeeze out an extra percent or so.

Then we decide that an agency calculation for a renter who works in the city, doesnt pay for health care, and buys a lot of electronics every year is our best correlative factor for inflation, and that investments linked to this calculation are 'real'.

Theres a lot of people that I think are pretty smart who fall for that last bit. Thats frankly disappointing.

Joe Dominguez' story woke me up pretty good. Take too little risk and pretend inflation isnt that bad, and you'll spiral into living in a group home and washing plastic wrap off. Not because you think thats frugal but because you have absolutely no choice.

Who fakes what, who thinks its a conspiracy theory or wants to troll somebody to amuse themselves is irrelevant.

Understand how your spending will change in retirement. Understand how it'll change over time. Invest so as to offset the changes, both one-time and ongoing. Dont end up living with 20 other guys in a disintegrating 4 story walkup in your 80's nibbling on salted wood pulp.

Hope you enjoyed your daily public service message...

 

[W2R]

Dont end up living with 20 other guys in a disintegrating 4 story walkup in your 80's nibbling on salted wood pulp.

Now there's a cheery picture.

I usually scare myself by thinking of living in a cardboard box under a freeway, and scavanging the garbage cans for a meal.

Salted wood pulp, huh. Yuck. At least my imaginary dumpsters have old grocery store produce in them.

But then, that's why I have multiple safety nets built into my financial approach to retirement.

 

[Bikerdude]

Over 7 years of ER I've averaged 3% inflation. Biggest increases are State and local taxes and healthcare.

 

[Twinkle Toes]

Been ER for 12 years. Inflation has averaged about 3%. A couple of interesting items in our expenses:
1) Our largest expense for the first 9 years was health insurance. We relocated to another state three years ago and changed insurance, saved about $500/mo...same coverage.
2) Bought a new truck this year at a cost of $40K, which replaced one that cost $24K. It wasn't exactly apples to apples, but it was really close.

 

[F-One]

Twinkle Toes,

If you don't mind sharing, which states? Healthcare costs are our biggest concern.

 

[Twinkle Toes]

Twinkle Toes,

If you don't mind sharing, which states? Healthcare costs are our biggest concern.

Moved from Texas to NM. I think TX has some peculiar requirements on insurance companies. I didn't do a lot of shopping in NM, just applied to BC/BS. We were thrilled with the premium. We both hit the big 6 oh! this year and our premiums went up $30/mo or about 12.5% We are both healthy so only have catastrophic coverage ($5,000 deduct). We have had occasion to use the insurance only twice in the last 3 years and both times the total bills were way under $5,000 deduct., but we went to "in coverage" doctors and filed through BC/BS so our bills were reduced to the "contract" rates. This summer when DH got sick, we got his prescriptions filled at Wal-Mart for $4 each!
Twink

 

[ziggy29]

Moved from Texas to NM. I think TX has some peculiar requirements on insurance companies....

Texas is, overall, one of the most expensive insurance states in the union, particularly for homeowners' insurance but to some degree for health as well.

I think the state legislature is beholden to insurance companies here. At least there's no income tax, though, and if you LBYM it and live in a modest house, even the high sales and property taxes can be almost tolerable.

 

[Helena]

BCBS of Texas and BCBS of NM are part of the same parent company
as is BCBS of Oklahoma and BCBS of Illinois... they are all part of HCSC
headquartered in Chicago. HCSC is looking to take in other non-investor
owned BCBS plans.

 

[TickTock]

Thanks to everyone who shared their experiences!

 

[Zoocat]

Joe Dominguez' story woke me up pretty good. Take too little risk and pretend inflation isnt that bad, and you'll spiral into living in a group home and washing plastic wrap off. Not because you think thats frugal but because you have absolutely no choice.

What happened to Joe Dominquez? I mean, besides death? Did he run out of money?

 

[Twinkle Toes]

BCBS of Texas and BCBS of NM are part of the same parent company
as is BCBS of Oklahoma and BCBS of Illinois... they are all part of HCSC
headquartered in Chicago. HCSC is looking to take in other non-investor
owned BCBS plans.

True, but their rates vary from state to state and even from location to location within the state (TX is really big). Early in retirement, I called BCBS to check out insurance. The representative said they would decline if I applied...preexisting conditions (no heart problems or cancer). Bought HI from another company and they excluded everything wrong with me, then some!

When I applied for BCBS in NM, I disclosed same preexisting stuff. They insured me without any exclusions. I suspect I could keep BCBS if I moved back to TX but suspect that my rates would go up.

 

[TickTock]

What happened to Joe Dominquez? I mean, besides death? Did he run out of money?

Joe Dominguez died of cancer in 1997 (he was born in 1938 ). He FIREd in 1969 at the age of 31. The 1992 version of YMOYL (the 1999 version only changes the resource list and index) doesn't mention any reduction in Joe's standard of living, and talks about "dispelling the irrational fear of inflation" (page 297, italics in original).

 

[lhamo]

I believe the communal housing arrangement Joe D (and Vicki R, who I think still lives in the same house) made was something they did early on and it was a choice related to their core values -- not necessarily a choice made out of economic necessity. At any point in time they could have made TONS of money off of YMOYL (I still remember when they were on Oprah...), but they didn't sell out and all the money they did make went back into the New Road Map Foundation.

That being said, I think maybe the ability to not worry about inflation is past us now -- I have a feeling that there is no way that the costs of basic goods and services can stay as low as they have been. I remember cleaning out a trunk from my grandma's house a few years ago and finding a grocery store circular from safeway from the early '70s -- astounding to see that at the time I could get better prices on many things in 2002 than I could in 1972! But I think that is an aberration and since then we have indeed seen the cost of basic foods go way up. As the pendulum swings (oil prices up, water prices up, labor costs up) consumers will be having to bear a higher percentage of the cost of production. I think it is prudent to plan for at least a reasonable level of inflation.

lhamo