The difference between the reported CPI and our personal cost of living has increased recently. For example, our rates for electricity, gas, and water/sewer utilities have had double digit increases each year for the last 3 years. Food prices are rising rapidly. Foreign travel costs have jumped with the drop in the US dollar against foreign currencies. These things are significant parts of our budget. We spend very little on things which have become cheaper lately such as clothes or electronics.
I have been retired for 11 years and DW for 7 years. There are, and always will be, plenty of things that we are not doing and do not need to do but would enjoy if we could safely afford the extra spending.
I have my own calculations in the style of Firecalc since I need to model some things, like our small pensions with partial CPI adjustment, that Firecalc cannot handle. Both my calculations and Firecalc indicate that our spending is more conservative than necessary. However, both of these calculations use the CPI to adjust future spending, which seems like a head in the sand assumption.
Adding a yearly spending increase above the CPI to my calculations drastically effects portfolio survivability. For example increasing each year's spending by (CPI + 2.5%) has the same effect on success probability as cutting the initial portfolio value by 40%.
I hope that this is too pessimistic, but maybe not. In any case, the 2.5% figure was pulled out of thin air.
Does anybody have suggestions for determining what is a "safe" withdrawal rate when the CPI does not accurately reflect our cost of living?
ExHermit
I have been retired for 11 years and DW for 7 years. There are, and always will be, plenty of things that we are not doing and do not need to do but would enjoy if we could safely afford the extra spending.
I have my own calculations in the style of Firecalc since I need to model some things, like our small pensions with partial CPI adjustment, that Firecalc cannot handle. Both my calculations and Firecalc indicate that our spending is more conservative than necessary. However, both of these calculations use the CPI to adjust future spending, which seems like a head in the sand assumption.
Adding a yearly spending increase above the CPI to my calculations drastically effects portfolio survivability. For example increasing each year's spending by (CPI + 2.5%) has the same effect on success probability as cutting the initial portfolio value by 40%.
I hope that this is too pessimistic, but maybe not. In any case, the 2.5% figure was pulled out of thin air.
Does anybody have suggestions for determining what is a "safe" withdrawal rate when the CPI does not accurately reflect our cost of living?
ExHermit