Concerns About Inflation?

[CharlieZulu]

Charlie did you read my post, everyone has their own inflation number...


Remember no one complains when their stock doubles.

I like that perspective, “your own inflation number.” Makes sense. Your point about home ownership is also good. Except...no one complains about rising values in homes until they pay their property taxes. Colorado home values are skyrocketing.

That said, yes, Inflation is not evenly applied against all sectors of the economy, and so it totally depends on what you spend your money on. Absolutely on board. Right now, I imagine that those who want to travel are getting pummeled. , as an example.

Thanks!

 

[Chuckanut]

Here's an interesting advertisement from 1938 promising a man of 40 $1800 a year by the time he is 55.

 

[CharlieZulu]

According to the US inflation calculator...with a nod to @ivinsfan for her point about individual inflation rates...that is about $35,000 today. Not too bad.

Not so good if it was fixed amount for the entirety of a retirement. Assuming that 55 year old in 1938 lived to 75...that person needed about $3600 in 1958 to retain the spending power, again, per the inflation calculator. 50% cut in standard of living. Ugh.

Point made, Chuck. Thanks!

 

[CharlieZulu]

My thanks to everyone who jumped in. Was a great chat. Getting late here in Colorado. And yes, I have to get to work tomorrow. I envy those of you who don’t worry about that! One day closer....

 

[Sunset]

Check back tomorrow and see the new posts.

Myself, sure I worry about inflation, cannot really do much about it, except that it confirms my decision to take SS at 70 as that is one income source that will be roughly indexed to inflation, so I need it as large as possible.

I will continue to spend my savings, especially the bank earning 0.5% with inflation at 5.5% , those dollars are becoming less valuable, while my SS number gets higher.

 

[teejayevans]

I worry about my real inflation rate, the government rate doesn’t include food, gas, etc.

 

[street]

Worrying about inflation is worrying about something I don't have control of. Things will cost more but then we have choices to buy or not buy in most cases. Food is an essential and life goes on because we need food. Earthly and non essential materials we have choices so inflation is something I will not worry about just need to adjust if I like.

 

[mrfeh]

Anybody else concerned...and maybe holding back from pulling the trigger until things calm down?

Nope.

 

[Markola]

When someone figures out what will happen, let us know here first. Or don’t, ‘cause your guess is probably wrong.

 

[CaptTom]

...And inflation is a group problem not something that comes along and whacks you on the head causing personal loss.

Good discussion. I'd like to come back to the above point.

When I was w*rking, inflation affected everyone around me equally. Pay raises more or less followed the inflation rate.

Retired with a fixed pension (among other resources) inflation is very much a personal hit. That said, I did plan for it, and I've been very lucky so far. But I'm always expecting the other shoe to drop. I'm bracing for a few of those "bad years" ahead to make up for the past five "good years." We'll see.

 

[Surewhitey]

We track our spending and in 2017 we spent approximately $44k without any remodeling / cars.

Fast forward to 2021 & we're on track to still be below $50k, as low as $45k. I feel like we make tweaks to our spending over time, but never scrimp on travel and food, our 2 happy places. I'm aware, but not concerned yet. Worst case, we can go to 1 car and smaller home, insurance and taxes.

We're even planning our 25th anniversary trip for later this year for 2 weeks in Cozumel. Traveling is usually 1 month/year...

 

[GravitySucks]

Always concerned about inflation in retirement. When the market takes our money we expect it will eventually give it back. When inflation takes our money it doesn't give it back.
Letting my AA float up to 65/35 from the 60/40 and thinking stocks will match inflation better than bonds. My spending is still lower than preCovid and this will probably be my new normal. So while I do see inflation it's not hurting.

OP - You look to be in great shape re inflation.

 

[Chuckanut]

Rather than lecture others on what they should do, I like to tell my story. People can take from it what they wish and leave the rest.

I came of age financially during the very high inflation days of the 1970's and 80's. I also saw at that time what was the fiercest and most relentless Bear Market of my life. A 40% drop in the stock market and a long, slow climb back up. It took well over a decade to break even in real terms. Needless to say the memory of double digit inflation stayed with me, just as the memory of the Great Depression and WW2 stayed with my parents.

When I found out I could buy 5 more years of service on my pension I jumped at the chance. Our shop teacher, a smart but very opinionated guy, lectured me on how foolish it was. The payback was just too long in his opinion. But, I noticed that it came with the same limited COLA as the rest of the pension. Being a Math kind of guy, I ran some numbers through a spreadsheet and realized that even a moderate inflation rate of 3-4% would reduce the payback period quite a bit. So, I wrote the check (a bit over 70 Grand, that hurt!). Even with the very low inflation since my retirement, I currently pull in an additional $512 a year in COLA adjustments on that additional 5 years of service. COLA for 2021 is 1.9%. I expect 2022's COLA will be bump up against the COLA limit for the plan.

I also decided to take SS at 70 since I plan to live into my 90's. (Yes, I know. God laughs while humans plan.)

Most important is the fact that my partially COLA'd pension along with the SS COLA allows me much peace of mind. Even if I drain my reserves on wine, women and song, and waste the rest, I can still most likely continue on with a descent though more limited lifestyle.

FWIW, I would still prefer lower inflation, realistic interest rates on savings, and a much smaller COLA adjustment, but one takes what one can get.

 

[ivinsfan]

Here's an interesting advertisement from 1938 promising a man of 40 $1800 a year by the time he is 55.

Not sure if this is OT. But how much lifestyle creep do you think we have experienced in the last 90 plus years. Obviously you couldn't live on 1800 year today but I wonder what we'd need number for an apples to apples lifestyle today.

 

[braumeister]

FireCalc has me in a good place in every scenario...and I presume that includes the years in the late 70s and early 80s when we had double-digit inflation and a stagnated market. True?

Anybody else concerned...and maybe holding back from pulling the trigger until things calm down?

Concern about inflation is perfectly reasonable. Worry about inflation is not -- certainly in your case (due to your COLA adjustments) and probably for most here. After all, that's one of the strong points of FIRECalc; it remembers all those galloping inflation years and includes them in its analysis.

 

[Montecfo]

The good news is that lumber prices are now down 70 percent, housing markets may have already seen their greatest increase, and more states are limiting the extra unemployment. In the fall kids will be back at school and the workforce can begin to normalize. OPEC just increased production, meaning gas prices will likely soften. It will take a bit longer on the chip shortage but this too shall pass.

I am watching inflation but demographics is destiny: US population is growing slowly and so will our economy and over a long-term basis, prices, though at somewhat higher levels than recent years, in my view.

 

[RunningBum]

I'm concerned about inflation. I didn't pull the ER trigger until I had what I felt was a safe buffer. I don't recall what my goal actually was.

If I was looking to ER now I probably would want more buffer than I did in 2011, with inflation picking up and an all-time stock market high that could have a correction coming. The most similar looking time frame might be the mid 60s. When you see a Firecalc success rate of 95%, Firecalc is indeed remembering that time period: it is a failure point. With 100% success all historical times work. You just have to hope it's not going to be worse than Firecalc's history, and that your spending isn't higher than estimated.

Things you can do now is not lock in the current low interest paying rate on long term CDs or bonds, or annuities. I have a significant portion of my non-equity investment in TIPs.

 

[mrfeh]

I am watching inflation but demographics is destiny: US population is growing slowly and so will our economy and over a long-term basis, prices, though at somewhat higher levels than recent years, in my view.

I agree. Long-term, we will return to 2% GDP growth and maybe 2% inflation, like we had for much of the 2010s.

Of course, I'm not an economist, and my opinion is worth as much as the next person's.

 

[snowboarder]

Yes.

 

[Out of Steam]

I know that a substantial portion of our forum members believe that a hyperinflation scenario in the US is fairly likely. I disagree, there's simply too much production capacity for every conceivable good and material, and too many available workers around the world to produce them.

As for services and other goods, I'm of the opinion that business is likely to find ways to outsource things to low-wage countries that we could never imagine possible. Everything from eldercare and surgery, to office buildings and road bridges. I don't see how long-term inflation can take hold.

What we appear to be seeing is a generation or more of wage increases being paid out all at once, mainly due to the increased risk of low wage work without health insurance during COVID. Loss of new immigrants from countries where departure to the US is discretionary may also be a factor.

 

[teejayevans]

We’ve never seen a spending spree like what could happen (8+ trillion possibly in 2 years).
Some inflation can result in widespread inflation (energy, some commodities, etc).
Some inflation is more permanent (wages), some not (lumber).
I don’t remember any of the “experts” predicting 5+%….yet here we are.

 

[Dtail]

We’ve never seen a spending spree like what could happen (8+ trillion possibly in 2 years).
Some inflation can result in widespread inflation (energy, some commodities, etc).
Some inflation is more permanent (wages), some not (lumber).
I don’t remember any of the “experts” predicting 5+%….yet here we are.

True except without the natural increases in interest rates. Worst of both worlds.

 

[Montecfo]

We’ve never seen a spending spree like what could happen (8+ trillion possibly in 2 years).
Some inflation can result in widespread inflation (energy, some commodities, etc).
Some inflation is more permanent (wages), some not (lumber).
I don’t remember any of the “experts” predicting 5+%….yet here we are.

Committed spending and actual spending are two different things. The infrastructure bill for example will be for projects taking place over a decade minimum. It also may include previous funding committed to Covid, a savings that lets our government take "credit" for the same spending twice.

I am not saying I'm not concerned about profligate spending. I am. But there is meaningful lag involved.

And aot of the relief spending has remained in peoples' bank accounts.

 

[bolt]

Concerns about inflations effects?
So 3hrs ago I was perusing Economics Explained on Blinkist((EEon)Utube).

That site (EE) outside the USA claimed the USA.gov recently spent more than WWI's costs combined w/WWII costs, ..somehow compounded... and spent more than that on C19 virius.

I suspect inflations masked in multiple ways in this country.
For its own(USA)benefit, reduced SS payments, inflate away its debt's, etc.etc.

It astounds me how many of us tax payers believe whats called .gov's rules, polices, guidelines, taxation schemes, & whats accepted as conventional wisdom.
Charlie Munger: assessing current financial Higher Ed as "costly & time consuming nonsense", MMT/MPT/Etc.etc.etc. in pursuit of an ease to wealth.

I recently met a 36yr old FT student studying* on his parents dime in germany, in BOS studying "Germanic History".
He was selling his car they gave him for cash, because he was moving to CA because it was nicer there .
He readily acknoledged WWII was primarily fought because of WWI's debts, ...hitler was instrumental.
I'm becoming confused & dislusional, please forgive me.

Hmmmm.....
Good luck & Best wishes....

 

[Letj]

I am in my 12th year of retirement. I have been expecting runaway inflation for the past 15 years, and much to my amazement it hasn't happened yet. But, while anticipating inflation, I had plenty of time to think about how I'd handle it.



In retirement, we can't control the effect of inflation on earnings, but we can always cut back on spending somewhat until the economy recovers. That's my plan. I have a paid off house and car, and no debt, so I am not too worried about it.



That said, I am perfectly happy (extremely happy?) with an average middle class life as a retiree. So, this plan works for me but maybe not for everyone.

One of the things I worry about is inflation. Are you spending much more now than you spent when you first retired? In other words have you made annual adjustments to keep up with inflation? And if so, percentage wise how much more are you spending?