How Will Inflation Affect Your 2022 Planned Spend?

[Winemaker]

There's $30k left in the checkbook, with one week to go in the year. 2/3 will go to our favorite charities, and the last $10k will be an inflation buffer for next year.

 

[youbet]

I'm confused by many of the answers here. Some folks are saying that their FIRE plans and situation are on very solid footing, yet they aren't going to increase spending to accommodate maintaining the same or better lifestyle they've been enjoying despite prices being higher. I don't get it. Why would you spend the same amount which, after inflation, will buy you less experiences and stuff than it would have at lower prices? The alternative, which I'm following, is to spend enough more to maintain our standard of living despite inflation-driven higher prices.

 

[MichaelB]

When I said “we don’t plan any changes to our spending”, what I meant to convey is we plan on maintaining our current level of consumption. Sorry if that caused any confusion.

 

[MarieIG]

I expect we will pay more for the same stuff.

Part of the prep for retirement, which we finally accomplished in November, was the selling our marital home and moving into my parents' home, which I inherited. This lowered our overhead expenses a great deal, as Long Island has very high property tax, not to mention the utilities, maintenance and home owners' insurance.

This will be my first year in retirement, so I expect I will be nervous and restrained. DH will be going into his third year.

My BTD will be a gift to one DS for a Roth IRA, to another DS for grandchildrens' account, and Roth conversions.

 

[Doingitwrong]

We’ve entered another period of person deflation. DW went on Medicare in 2021. Not as big a deal as when the ACA came along, but big.
We spent $190 out of pocket on docs, hospital, etc (excluding drugs) on her in 2021. That included a total knee replacement and sixth abdominal surgery.
By comparison, in 2018 and 2019, she had her fourth and fifth abdominal surgeries and each year we spent $10,000 out of pocket.
Pre-ACA we had many $40k - $50k (negotiated) years.
AND even with the best Medicare Supplement plan I could buy her, we are saving on her insurance premiums.
I’m w*rking part time and gross $72k. I’m refilling my solo 401k with my income.
But I have to do massive rethink for 2022. And beyond.

 

[cat4ever]

Don't most retirement calculators account for inflation in their process?

We have not really changed any spending and don't plan too, other than still no travel, other than fairly local by car.

yes they do, which means if you follow them you are allowed to increase your spending each year, at least that's how I look at it. The real question (and I think the question at hand) is how do you determine how much to adjust each year.

 

[youbet]

When I said “we don’t plan any changes to our spending”, what I meant to convey is we plan on maintaining our current level of consumption. Sorry if that caused any confusion.

That's what I was thinking you and others with similar comments meant Michael, but wasn't positive. With that interpretation in mind, it does seem like most folks here plan on increasing spending to maintain their standard of living / consumption level. FireCalc test runs include periods of significant inflation, so it seems that, so far, our current situation is no worse than history.

Thanks for the clarification.

For recent retirees, do note that early high inflation is a "sequence risk" that's now on your plate. And it can be a greater risk than "sequence of returns risk" for investment returns. Inflation generally never corrects while market drops always seem to eventually.

 

[Surewhitey]

That's what I was thinking you and others with similar comments meant Michael, but wasn't positive. With that interpretation in mind, it does seem like most folks here plan on increasing spending to maintain their standard of living / consumption level. FireCalc test runs include periods of significant inflation, so it seems that, so far, our current situation is no worse than history.

Thanks for the clarification.

For recent retirees, do note that early high inflation is a "sequence risk" that's now on your plate. And it can be a greater risk than "sequence of returns risk" for investment returns. Inflation generally never corrects while market drops always seem to eventually.

I've considered it a LBYMs situation. If you plan to live on X dollars, either plan on a perpetual (X+fun money) and make minor adjustments to your needs. We aren't sweating the minor stuff (groceries) and have most major things somewhat locked in (prop tax, insurance). We can always make adjustments to the travel and car costs if needed (2 of our biggest expenses).

We live on 2-3% WR and still w*rk for "fun" & great insurance... DW's company gave a 5% COL adjustment to everyone which is 15% of our annual spend in her case.

 

[Koolau]

When I said “we don’t plan any changes to our spending”, what I meant to convey is we plan on maintaining our current level of consumption. Sorry if that caused any confusion.

I think I'd go one step further. I will attempt to ameliorate the effects with strategic buying (chicken vs beef or whatever.) It's not that I have to do this, it's more a reverting to habit or comfort level. But, yes, we won't cut back on the level of consumption. YMMV

 

[Fermion]

I want the Ford Lightning F150 with the 131kWh battery (yeah I know I know, all the problems I had with my 2017 F150 4x4 and the warranty disallow but I am giving Farley a chance, he is a gearhead after all).

So, I am buying 3000 shares of F at $19 and will sell it next year for $30 and use the profit to help offset the cost of the F150.

Then I am going to make the most bad ass truck camper you have ever seen, capable of boondocking for weeks without running a genset (as long as you don't have to drive too far to get to the campsite lol)

Hmm, so I am up $15,000 on my 3000 shares today due to the Ford announcement they will be increasing production of the Lightning.

I kind of have the additional problem though that even if I get $35,000 or so from this trade, I don't have a reservation yet for the truck

 

[RunningBum]

Nice returns last year and the gently increasing multiplier in my VPW spreadsheet sets my spending allowance about 15% higher this year. And last year my spending came out about 8% short of allowed even though I bought a new car. So inflation isn't going to affect my spending, but I'm also not spending more on stuff just because I can. If I want it, no problem, but I'm not looking for things to spend money on.

The only thing I'm having sticker shock on is snow crab legs. I used to be able to find it for $9.99 at Kroger with a little patience. Now it seems locked in at $19.99. I finally got over it for Christmas dinner.

 

[Fermion]

Nice returns last year and the gently increasing multiplier in my VPW spreadsheet sets my spending allowance about 15% higher this year. And last year my spending came out about 8% short of allowed even though I bought a new car. So inflation isn't going to affect my spending, but I'm also not spending more on stuff just because I can. If I want it, no problem, but I'm not looking for things to spend money on.

The only thing I'm having sticker shock on is snow crab legs. I used to be able to find it for $9.99 at Kroger with a little patience. Now it seems locked in at $19.99. I finally got over it for Christmas dinner.

Now I want snow crab legs, thanks a lot.

 

[flyingaway]

Plan to spend more money in 2022.

 

[Koolau]

Plan to spend more money in 2022.

That would be easy vs 2021 and especially vs 2020 but YMMV.

 

[explanade]

Ray Dalio said people have to get out of cash NOW.

Not sure he was necessarily touting putting money into equities though.

 

[Walt34]

The pension we have is 100% COLA'd so that will help, although I don't expect that it will make up for every last bit of inflation as the COLA is naturally behind by one year. And this is the first year that I will be forced to take RMDs from the IRA and I suppose we could actually spend some of it.

 

[RobLJ]

We've seen an increase in food and a few other items. We bought solar panels back in 2019 with excess cash, then in part due to no international travel in 2020/2021 and much less domestic flying (usually 5-6x year to check on aged mother in Ft. Worth), we bought an electric car in 2020 and a plug-in hybrid in 2021. Gas has gone down to 1/6 of precar replacement; and we're insulated against Nevada Electric's electric cost raise. And still little travel (we did drive to Ft. Worth before Thanksgiving). Little restaurant dining, so the increased groceries are paid for by the decrease in dining.

Those of you building houses or buying, however, are hammered and there are a lot of other areas against which we seem insulated so far. Bottom line is that inflation is highly personalized; most recently housing is the big risk factor. I should also note that as a retired state gov worker, health care inflation is not an issue, so far; costs will go up some when I and DW take Medicare but pale in comparison to most of you even on ACA, for which I am grateful and lucky. As others note, the portfolio increases insulate (for now) against almost any inflation. I'm skeptical inflation will be long-lasting, but it may persist for 1-2 years as the supply chain and other issues get hammered out. We do not have the demographic growth (in my view) to fuel long-term high inflation like the 70's.

 

[RobLJ]

Admittedly, our camping/backpacking spending went up a lot and alcohol less so (yewt living with us picked up 1/2 of the alcohol).

 

[daylatedollarshort]

Our local 99 Cents Only Store is going to have to change their name to Not Much for 99 Cents Anymore if inflation keeps up. Some of our regular purchases, like dark chocolate bars and portobello mushrooms, went up to $1.50. It is not exactly a budget buster for us, but a 50% price increase is pretty huge percent increase for one price change. Those price are still a lot cheaper than our local supermarket for the same items, though. Similar chocolate bars and mushroom packs are $3 and $4 there.

 

[SecondCor521]

I'm confused by many of the answers here. Some folks are saying that their FIRE plans and situation are on very solid footing, yet they aren't going to increase spending to accommodate maintaining the same or better lifestyle they've been enjoying despite prices being higher. I don't get it. Why would you spend the same amount which, after inflation, will buy you less experiences and stuff than it would have at lower prices? The alternative, which I'm following, is to spend enough more to maintain our standard of living despite inflation-driven higher prices.

Another explanation would be that everyone is affected by inflation differently. Therefore, it's possible to be a person on solid footing, maintain their current lifestyle, and not spend more (because their particular items purchased are, in aggregate, not inflating).

I'm one such person. I have about a 1% WR (updated with 2022 data - my net WR% went up because my NPI went down). I plan to maintain my current lifestyle. I don't expect much increase in the dollar costs of my lifestyle. But if that expectation is wrong, I'll mostly be like @MichaelB - I'll mostly adapt by just spending more dollars. Any lifestyle modification to save will be marginal and opportunistic.

 

[Turbo29]

Our local 99 Cents Only Store is going to have to change their name to Not Much for 99 Cents Anymore if inflation keeps up. Some of our regular purchases, like dark chocolate bars and portobello mushrooms, went up to $1.50. It is not exactly a budget buster for us, but a 50% price increase is pretty huge percent increase for one price change. Those price are still a lot cheaper than our local supermarket for the same items, though. Similar chocolate bars and mushroom packs are $3 and $4 there.

If they can hold off 80 years then at our current rate of inflation they could just call it the 99 Dollar Only store.

 

[Koolau]

The pension we have is 100% COLA'd so that will help, although I don't expect that it will make up for every last bit of inflation as the COLA is naturally behind by one year. And this is the first year that I will be forced to take RMDs from the IRA and I suppose we could actually spend some of it.

Only income we have that is COLA'd is SS. And the increases appear destined to be going to higher Medicare premiums. What's a poor soul to do?