Concerns About Inflation?

[daylatedollarshort]

In my retirement spreadsheet, the modeling I did before we retired showed we would actually come out ahead with high inflation. Our fixed rate mortgage would stay the same, house price (HCOL area) would rise, SS checks and one of the pensions would increase and the inflation factor on our TIPS would rise.

Since we retired I have a hobby of always trying to live better for less with a long list of projects. I try to tackle a few a month and still have quite a long list to go. The lower our fixed expenses, the less they are subject to inflation.

 

[W2R]

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?

Attached is a graph of my annual spending. Each year's spending is divided by the first year's spending.

I don't see that I am spending much more now than when I first retired. Maybe? You can decide what you think the graph is telling us.

I was very fortunate to retire in 2009. Since that year the market has been thriving nicely. This allowed me to wait until age 70 to claim SS.

FIRECalc tells me I could be spending about twice what I spent that first year, (2.0 on the graph), but I am used to living at my present level of spending, and haven't had any desire to spend more. With no mortgage, no loans or other debt, my rock bottom spending can be pretty low if I want it to be low.

 

[GravitySucks]

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?

After 8 years I spent about the same last year as year 1 through 5 not counting taxes for Roth conversions. This year might be up around 5% over year 1 as I'm managing MAGI for ACA so less taxes and insurance cost. That's much less than the official rate.

Further on the plus side, all my spreadsheet projections were conservative and used a best case 3% inflation rate. We can hit 6% this year and next and still not be where I assumed we would be.

Still concerned as a 1978 through 1983 type run would hurt bad. We don't need hyperinflation to ruin my plans, 5 years of 10% - 12% will also put a damper on it.

Sent from my LM-Q850 using Early Retirement Forum mobile app

 

[VFK57]

Any individual, family or countries which cannot live by their means soon or late go bankrupt. Of course a developed country may borrow up to 5% of their GDP or/and print as much as they need but soon or late it will lead to a huge inflation.

 

[WestUniversity]

18 months? We wish. Inflation will go up for many years and until we know how to stop printing money freely, we are not going to get relief.

+1

You can’t pump trillions of dollars into the economy with the same amount of goods and not expect prices to go up. If there are more dollars chasing the same supply of goods, prices will go up. Simple supply and demand…

 

[Graybeard]

Am I concerned? Yes. We experienced very low inflation over the past 10-12 years and things have a way of balancing out, kind of like reversion to the mean. I remember the inflation of the 1970's and it was bad, you could get great rates on CDs around 12% but mortgages were insanely high, a co-worker's was 21% in 1981 or 1982 and the 30 year treasury bond was 15% around 1985.

I know prices for food and they have been increasing over the past 2+ years but have really gone up a lot recently. While this bothers me, I realize that I can afford inflation unless it was 20 or 30% but I can't see that happening. I want to have a lower equity allocation but fixed income like bond funds will lose money as rates rise. I understand how duration effects a bond fund so rising rates, if you reinvest the dividends, will basically break even. I'd prefer a lower equity allocation but equities can keep up with inflation but I need to accept the risk of say a 50/50 or 60/40 AA vs say a 30/70 or 40/60 AA.

 

[teejayevans]

I’m sure every country that had hyperinflation never thought it would happen to them.

 

[corn18]

+1

You can’t pump trillions of dollars into the economy with the same amount of goods and not expect prices to go up. If there are more dollars chasing the same supply of goods, prices will go up. Simple supply and demand…

The Treasury printed the money and the Fed bought it, so it isn’t in the economy.

 

[Chuckanut]

The Treasury printed the money and the Fed bought it, so it isn’t in the economy.

Then where is it?

Did Bezos take it with him and forget to bring it back?

 

[GenXguy]

+1

You can’t pump trillions of dollars into the economy with the same amount of goods and not expect prices to go up. If there are more dollars chasing the same supply of goods, prices will go up. Simple supply and demand…

What's sad is that when people were saying inflation was only 2% in previous years because of government figures, I was seeing my costs go up more than that. And this last year, my homeowner's insurance went up 12% (no claims, no change in deductible), property insurance has risen much much faster than my home's value, and I'm getting hit with higher costs on everything. The state increased various fees for things, such as 50% on car registrations. Groceries are getting ridiculous. Electric bill is $50 before I even use my first kwh now. A lot of this was happening when inflation was supposedly low. lol So, it really concerns me how much this stuff is going to shoot up now they everyone is admitting to high inflation.

Also, once costs are inflated due to 12% inflation such as my insurance, if inflation drops to 4% the next year, that doesn't mean the cost will drop, it will still be highly inflated from the previous 12% increase plus will have an additional 4% increase. In the news, you will hear comments about the high inflation being temporary, but when inflation returns to 4%, the higher cost has already been baked in from when inflation was higher. And you can be sure it's higher than the government figure, which the 4% rule is based on. There will be some exceptions, like as mentioned, lumber prices have dropped, but I think they are still going to settle in much higher than they were in 2019 before the pandemic.

 

[corn18]

Then where is it?

Did Bezos take it with him and forget to bring it back?

It's just sitting on the Fed's balance sheet to the tune of $8.2T. And they are adding $120B to that each month. That's what's keeping rates down. If they ever stop buying, rates will rocket back up to wherever they should be, which I think is around 3%-4% for the 10 yr note. Watch what happens to growth stocks if that happens.

Although there was a large chunk that made it into the hands of citizens in this last stimulus package. And that is contributing to inflation. If all $8B of debt went into the economy, we would all be very unhappy.

 

[yhoomajor]

It's just sitting on the Fed's balance sheet to the tune of $8.2T. And they are adding $120B to that each month. That's what's keeping rates down. If they ever stop buying, rates will rocket back up to wherever they should be, which I think is around 3%-4% for the 10 yr note. Watch what happens to growth stocks if that happens.

Although there was a large chunk that made it into the hands of citizens in this last stimulus package. And that is contributing to inflation. If all $8B of debt went into the economy, we would all be very unhappy.

Money doesn't sit on Fed's balance sheet.
Fed is buying mostly Treasuries and Mortgage Backed securities (and all kind of Bonds) to juice up the economy.

When Fed buys these bonds, they receive the Bonds, not the money. Its generally the other way. Fed just adds electronic bits (new funny money) in a computer and gives it to folks from whom its buying the bonds. So the new money is released in Markets. Its not sitting with Fed. What is sitting with Feds is Bonds and their likes.

What other folks do with that money? US Government is spending like there is no tomorrow. For MBS, homes/properties are bought and that money then flows to Home seller who then can invest in stock markets or other properties or many other things.

 

[VFK57]

Those who think that somehow the Feds could reduce greatly their balance sheet and reduce our National Debt without high inflation are naive. https://www.usdebtclock.org/
On the other hand to keep money in CDs, under mattress or bonds is not a solution because of inflation is already much higher than the rates. On the other hand the stocks are at the highest level ever and so is the RE market while EU, China and US are raising to debase their currencies in their competition for the leading economy of the world.

 

[ExFlyBoy5]

Then where is it?

Did Bezos take it with him and forget to bring it back?

Maybe it's in the trunk of the Tesla that Elon launched into space a while back. My DW is convinced that there is a dead body in that trunk.

 

[Markola]

There’s no free lunch but I choose to believe the Fed that the inflation spike is temporary over commenters who do not have the Fed’s extensive data or teams of economists. I’m glad they took action to restore confidence in the financial system after the reckless private sector and the usual libertarian types in Congress destroyed confidence in 2008/09; and again when Covid appeared out of nowhere last year, leading to record unemployment. To me, the alternative would be massive, unnecessary human pain and a return to 19th Century unfettered capitalism with its frequent panics and bank runs. No thanks.

 

[38Chevy454]

Concerns? Yes, but also overall inflation is something I have no control over. I can adapt or modify my own spending and budget. I can also change my investment options. Having a good plan before and now during retirement gives confidence that I can make it through. May not be happy or able to do all i want because of increased costs. But I will be fine in the short and long term.

The amount of gov't messing with the financial markets due to controlling interest rates is going to reach an end that will be likely inflation higher than current. Lot of stealth inflation going on. While I can lower my spending, I have *never* seen gov't (fed, state, local) lower their spending. All I hear on the news is how whatever gov't agency (fed, state, local) needs more money to fix this or that problem. It is always more money.


I have benefited from all of the gov't financial shenanigans over past 10 years for sure. It has enabled my savings to grow much more than I would have predicted.

 

[GravitySucks]

There’s no free lunch but I choose to believe the Fed that the inflation spike is temporary over commenters who do not have the Fed’s extensive data or teams of economists. I’m glad they took action to restore confidence in the financial system after the reckless private sector and the usual libertarian types in Congress destroyed confidence in 2008/09; and again when Covid appeared out of nowhere last year, leading to record unemployment. To me, the alternative would be massive, unnecessary human pain and a return to 19th Century unfettered capitalism with its frequent panics and bank runs. No thanks.

+1
The anecdotes of prices rising higher than the official numbers are much more suspect to me than the official numbers.
The virus didn't kill so many in the labor force as to create a labor shortage. Wages have been due to rise for quite a while, and finally have. The government pumped money out to people keep the suffering low and the populace peaceful. Expecting inflation to be back to 2-3% in 2023.

Of course I've been wrong about everything these last couple years.

Sent from my LM-Q850 using Early Retirement Forum mobile app

 

[WestUniversity]

There’s no free lunch but I choose to believe the Fed that the inflation spike is temporary over commenters who do not have the Fed’s extensive data or teams of economists.

Remember the old truism, “wherever you find four economists you will find five opinions”

Or another favorite, “The first law of economics is that for every economist with one opinion you can find another economist with the opposite opinion. The second law is that they are both wrong.”

 

[Markola]

^^^^^ Yes, as an Econ major, I’m familiar with academic debates. What’s the alternative to making a reasonable judgement regarding which economists might have access to the best data and experience? Ignore them all and make up one’s own facts, as seems to be the vogue? Hopefully, you’re jesting and not doing that.

 

[WestUniversity]

Every profession has such comments directed at it, at times deservedly so.

If the last 18 months has taught us anything it is that the “experts” often have no idea what they are talking about…

 

[Markola]

OK, a pox on “the experts.” I wish I knew whom we were cursing, exactly.

 

[WestUniversity]

Cursing no, skepticism yes. There are few people I trust implicitly.

I remember someone from our nations past once saying, “ It’s not that we don’t know a lot of things, it’s just much of what we know is wrong”.

 

[chassis]

What does everyone think about inflation, relative to the Federal pandemic aid programs ending in early September?

Will this be a non-event with no effect on inflation? Or will it be a floodgate of labor supply that quenches the embers of inflation?

 

[VFK57]

What does everyone think about inflation, relative to the Federal pandemic aid programs ending in early September?

Will this be a non-event with no effect on inflation? Or will it be a floodgate of labor supply that quenches the embers of inflation?

Our economy is not that strong and with turning off the support (including infrastructure project on newly created money), the stock market may tank, reflecting actual condition of the economy but it may also slow down the inflation and support the US$ value. Most retires and close to retirement people do not like the policies what robs them from hard earned money.

 

[Chuckanut]

Remember the old truism, “wherever you find four economists you will find five opinions”

Or another favorite, “The first law of economics is that for every economist with one opinion you can find another economist with the opposite opinion. The second law is that they are both wrong.”

Add to your list:

"If you lined up all the economists in the world, they would reach to no conclusion."