inflation

[ed teach]

You know it is hard to figure out if you can live on 30000 today what you will need for 15 years from now.
I do not subscribe to the argument that everything is more expensive year by year.
when I first was married 20 years ago, we bought a TV 19" rca for 120 usd, and a cd player for 600. now I can buy a 25" for 140 with remote and a cd player for 24$
gas was for years at 1.32 give and take.
with the unstable middle east, it has went up but not with inflation.
vehicles are one place that keep going up, but the car market is hitting a big bump in the road. no one is buying them. there is a flood of excess cars. gm ford and Chrysler are laying off.
food is another place that has not risen in accord with the 3% inflation rate. Home prices have risen in some areas, but not all areas have risen that much.
and if you are looking at ER than you should have your home paid for by now.
I in no way am saying that there is no inflation, but the idea that if you live on 30,000 today you will need 95,000 in 30 years is a little out there. I have talked to many people who are in their 70s and they all live on not much more than they did 15 years ago. and some less.

 

[Spanky]

Inflation is a general increase in prices across the economy over a period of time. Most recent inflation rate has been in the neighborhood of 1% to 3%. If prices increase while earnings do not, you cannot consume as much as before. You can always reduce your consumption. It may be true that the price of certain items remains relatively stable or even reduces especially high tech items such as computers. However, most things go up in price over time. The only question is how much.

 

[Nords]

It's currency exchange, too.

However, most things go up in price over time. The only question is how much.

I'm not gonna bring up hedonics again, but it's interesting to note that oil's rise is more linked to the dollar's drop than it is to inflation.

Imagine if oil was sold by the euro or the yen...

 

[retire@40]

You see inflation when you look at a "basket of goods" not just one or two items that may not have increased in cost over a few years like VCRs, DVDs, computers, etc. You may even say those items cost more than they should have when they were first introduced to the market because of high demand and/or the built in cost of research and development.

What you want to look at to see the effects of inflation are things like the cost of milk, clothes, utilities like electric and cable, rents, etc. The real wacko-out-of-control inflationary items are health insurance and college tuition. Ask people that pay those expenses if inflation isn't real.

I was looking at a social security benefit statement for someone who started working in 1965 and they were showing yearly wages of about $7,000. By 1970 they were up to $10,800. I don't know if those were average wages back then, but this guy was supporting his wife and kid on that.

 

[John Galt]

Oh yeah, health insurance and college tuition. Ouch!
We still manage to live pretty well (the best revenge)
but if you added back our health insurance premiums
(100% self paid) and my share of my youngest
daughter's tuition...............well I would probably be
seriously boat shopping, starting today

JG

 

[preben]

I agree with Retire@40 and others that to evaluate ones PERSONAL inflation no.(PEN) one will have to look at the increase in basic costs where hard to "shop around/shop smart". Electricity/health care and even rent(if must stay in same area for family/work reasons) can be hard to change.

That said; I DO believe that smart shopping when it comes to stuff/groceries/some services(hair dresser Etc.) can lower ones PEN compared to the overall inflation no.

Also; one can delay some purchases longer to not get the full impact of inflation on the item (cars/fridge Etc. - get repaired/serviced instead of buying a new).

Problem is often that before FIRE we do not have the TIME(or energy) to actually do the smart shopping/internet comparisons/browse the supermarkets/haggle for a discount/go to flee markets Etc. and instead just grap the supermarket eye hight brand name washing powder as we run through the shop in our lunch break.

Cheers!

 

[Jarhead*]

You see inflation when you look at a "basket of goods" not just one or two items that may not have increased in cost over a few years like VCRs, DVDs, computers, etc.  You may even say those items cost more than they should have when they were first introduced to the market because of high demand and/or the built in cost of research and development.

What you want to look at to see the effects of inflation are things like the cost of milk, clothes, utilities like electric and cable, rents, etc.  The real wacko-out-of-control inflationary items are health insurance and college tuition.  Ask people that pay those expenses if inflation isn't real.

I was looking at a social security benefit statement for someone who started working in 1965 and they were showing yearly wages of about $7,000.  By 1970 they were up to $10,800.  I don't know if those were average wages back then, but this guy was supporting his wife and kid on that.

Retire@40:

I was making about $9500.00 a year in 1965. One small child, and another on the way. (Life was good. Had no idea what lied ahead for the next 17 years).
One retirement story I do remember, is my next door neighbor, (An old guy, I think about 53 at the time)
had spent 30 years working for Kaiser Steel in Fontana, Calif., had his house for sale, and said that he and his homemaker spouse were retiring and moving to No. Calif.
His kids were raised, and he would be receiving a $400.00 a month non-cola'd pension. He also told me that they had managed to save $30,000.0 (I remember thinking he must have done something right).
When "Big Paul Volker", with an assist from Ronald Reagan, broke the back of inflation, in the early 80's, after a lot of pain in the previous 17 years, was very late in coming for my neighbor.
Very interesting period

 

[FlowGirl]

Ed,

Somewhere you can get a breakdown of the CPI basket and see exactly how they get that number. Basically some things do go down in price, other things go up, and the average is what they quote as "inflation". As others here will point out though, the federal govt. has a vested interest in understating the CPI, so watch out.

I think managing your personal inflation rate through careful shopping and lifestyle choices is part of the solution, but not the whole answer. With early retirement, and potentially another 50 years of life, the unknowns are tremendous.

 

[Beachbumz]

I agree that one has to look at their own inflation rate vs. the average. FI, since I don't have to pay college tuition my rate will be lower than the guy that does. Health insurance/care is the real inflation killer in the US right now!

I also agree with Ben, based on personal experience, that when you are FIRED you can lower cost of some goods and services. But, I think this is a one-time phenomenon; iow, you can do this only once and once you are getting goods at the cheapest prices, you are subject to the increases from that point forward.

I totally agree with Nords that the primary increase in fuel costs is due to the fall of the dollar, not rise in oil prices (in real terms).

A couple more observations:
I can purchase a new Toyota 4Runner, better than the one I have, for less than I paid in 1998, and the difference is even bigger when you factor in the lower interest rates.

I remember walking to the local convenient store about 30 years ago as an 8 year old. I could get candy for a penny each (sometimes 2 for 1), last time I looked (don't do that much anymore ), they are like 10 to 15 cent each.

I also remember my dad talking about going to the moves in the 40s and getting the movie ticket, a soda and popcorn for 25 cent, you can do the same now for about 12 to 15 bucks.

Inflation IS real!

Beachbumz

 

[ed teach]

I did not mean to give the impression that inflation was not real.
But there are so many ways to buy and get around inflation.
I check on line before I buy, there are a lot of times you can purchase high quality items off line and you do not have to pay the overhead of middle men, this does not work with big heavy shipping items. but you can still use the lower sale price to work some local dealers.
When I was in nola a few weeks back, I saw a print framed in an art shop window. Raphael's fallen angles spoof, for 35$ I got on line and found it for 1.99 and I can get a nice frame at a local hobby store for 10$ and I do the matting myself. as far as movies go, you bet that has resin. and I refuse to pay 8$ a ticket and 5 bucks for a 3cent cup and 2 cents worth of syrup. and then get kicked in the back and have to listen to narration for the whole movie. I have a fta pansat and get 800 channels free. or I rent for a 1.50 for a dvd that I can pause when I have to whiz.
fuel is the one thing I cant get around, if I had a diesel, I could get fuel dropped to a tank for [farm purposes] and loose all the road tax, but I don't and I would not see a return on my money for much to long.
food, has not risen that much. 30 years ago I can remember stopping with my old man and getting a gallon of milk for 165, now if I shop I can pick it up for 185, a one liter pop for 99 cents, now at wal-mart I can pick it up for 57 cents,
Yes some things go up but my point that I was making is that I don't believe in the 3 % across the board every year. even in cars I buy used, let the first guy take the hit, I learned early only people who waste money buy new, the min, you drive around the block and back into the sales lot, you have lost 3k, if you know anything about autos, you can buy a good auto and have the first owner take the hit, my last auto I bought on line from eBay motors, I made sure that the seller had many many good feed backs I also would only bid on dealers that have a GE insurance policy on the drive train included.
and when you buy on line you don't give any money to the government, I do not like to give one red cent more than they can force out of my hands.

 

[FlowGirl]

One thing I've been thinking about is that if I live to be 100, I have another 70 years of life left (with at least 50 of them being in retirement). In light of this I find inflation a difficult factor to plug into the old spreadsheets simply because I know that some of things I will want haven't been invented yet.

I try to imagine retiring in 1950 and projecting forward to the present day - and its pretty tough. Yes computers have gotten cheaper and better since 1980, but would a 1950 retiree have even thought to put a computer into the budget? Obviously the bulk of products that we buy - food, clothing, and shelter are fairly predictable (in terms of the amount we use), but when it comes to the extras I'm not sure I would want to be limited to a 2005 lifestyle in 2060.

I was pretty quick to dismiss inflation until recently, but now I'm seeing how even small variations in my inflation assumptions can have a radical effect on our standard of living 50 years out. Inflation may be better or worse than what the government says, but I agree with Beachbumz that it is very much real.

 

[Beachbumz]

I don't disagree with you Ed, some things cost more now, others less, some are about the same as 15 years ago. In the mid 80s I remember we had sales on 6 packs of coke for 1.50, sometimes I can find them for 1.25 today. That's why you have to look at your personal inflation. Absent healthcare, I agree 3% is a high number, but those with large portions of their budget dedicated to healthcare probably wish their PIR was only 3%. Also, those 'deals' you are finding online now are a recent phenomenon, the 'deals' you get 15 to 30 years from now will likely be much higher. I hope you are right though, because I will be able to spend a lot more money!

Beachbumz

 

[Tadpole]

Would a change to federal VAT (or sales) tax jeopardize your SWR estimates?

 

[ed teach]

As far as I am concerned, I think that people making 30k for a single person to 60k for married, and add 10k for each kid, should not pay a dime in tax. make it up from the mega wealthy, I am for taking the tax up on the upper end to 60% or higher, it is the right of any one to make as much as they can, but when you make over a certain amount than you pay a higher tax.
I will be the bigger man here than any liberal, and state that I part ways with rush, and others on this issue, I heard one concretive say that they should take the national debt, and cost of running the government, and divided it by the people who are citizens, and they each have to pay that amount. This is a load of bull ****. lets say that the bill is 5k per person, that 5k is life and death to a single mom that makes 12 to 15k a year. but to the ceo of a large company that got a 5 million bonus for Christmas, it is a drop in the bucket. I am for no property tax on a persons or if married the couples residence home. up to the median home price in the state of residence. so lets say that a person living in Michigan the home avg. price is 150k so if your home assess at 100k you pay no property tax. if you live in gross point and your home assesses at 2 million then you deduct 150k form 2 mill. and you pay tax on 1.85 million, if needed compensate to make the difference. both parties have been involved in taking more from the small guy than from the big boys. money buys influence.

 

[ed teach]

As far as I am concerned, I think that people making 30k for a single person to 60k for married, and add 10k for each kid, should not pay a dime in tax. make it up from the mega wealthy, I am for taking the tax up on the upper end to 60% or higher, it is the right of any one to make as much as they can, but when you make over a certain amount than you pay a higher tax.
I will be the bigger man here than any liberal, and state that I part ways with rush, and others on this issue, I heard one concretive say that they should take the national debt, and cost of running the government, and divided it by the people who are citizens, and they each have to pay that amount. This is a load of bull ****. lets say that the bill is 5k per person, that 5k is life and death to a single mom that makes 12 to 15k a year. but to the ceo of a large company that got a 5 million bonus for Christmas, it is a drop in the bucket. I am for no property tax on a persons or if married the couples residence home. up to the median home price in the state of residence. so lets say that a person living in Michigan the home avg. price is 150k so if your home assess at 100k you pay no property tax. if you live in gross point and your home assesses at 2 million then you deduct 150k form 2 mill. and you pay tax on 1.85 million, if needed compensate to make the difference. both parties have been involved in taking more from the small guy than from the big boys. money buys influence.

 

[ed teach]

As far as I am concerned, I think that people making 30k for a single person to 60k for married, and add 10k for each kid, should not pay a dime in tax. make it up from the mega wealthy, I am for taking the tax up on the upper end to 60% or higher, it is the right of any one to make as much as they can, but when you make over a certain amount than you pay a higher tax.
I will be the bigger man here than any liberal, and state that I part ways with rush, and others on this issue, I heard one concretive say that they should take the national debt, and cost of running the government, and divided it by the people who are citizens, and they each have to pay that amount. This is a load of bull ****. lets say that the bill is 5k per person, that 5k is life and death to a single mom that makes 12 to 15k a year. but to the ceo of a large company that got a 5 million bonus for Christmas, it is a drop in the bucket. I am for no property tax on a persons or if married the couples residence home. up to the median home price in the state of residence. so lets say that a person living in Michigan the home avg. price is 150k so if your home assess at 100k you pay no property tax. if you live in gross point and your home assesses at 2 million then you deduct 150k form 2 mill. and you pay tax on 1.85 million, if needed compensate to make the difference. both parties have been involved in taking more from the small guy than from the big boys. money buys influence.

 

[Reiterant]

ed teach:

You are right on the money. No pun intended. What you have stated is directly oppsed to modern, usually conservative/libertarian, interpretation of economics especially it's vision of "capitalism". It IS, however, directly in accordance with Adam Smith's views on Capitalism and taxation.

I would go a step further and say just give everybody a huge deduction of something like 50-100 grand. No tax on anything from any source. Dividneds, cap gains, wages etc. No special treatment for marrieds/children because with that kind of money they wouldnt need it PLUS it keeps the Gov out of that sort of manipulation of people's lives and encourages everybody to pay for their chosen lifestyle.

Above that..yes, THAT according to all Capitalist business principles is where the taxation must occur. Even Smith said so. And no MAGIC kinds of income worthy of exemption (inheritences/Cap Gains/Dividneds etc) vs other types of income that get taxed to make up for it. (ie: Wages, tips and other compensation)

Now, the OTHER problem is much worse. Diddling with the nickles and dimes of taxation is ONE thing. Actually permitting sufficient distribution (notice I didnt say RE-distribution or FORCED distribution) throughout the economy is another. Even at ZERO taxes there are people who do not earn enough. That's why we have that Earned income tax credit thing and all manner of other "social programs" not asscoiated with simply spotting the super poor a few dollars. If people were able to get enough money none of this tax business would be a topic of conversation

 

[gayl]

I think that people making 30k for a single person to 60k for married...,should not pay a dime in tax.

Does it really cost 2x as much for 2 people to live in the same house? Are the utilities / property insurance & taxes / mortgage really twice as much? Just asking

 

[retire@40]

As far as I am concerned, I think that people making 30k for a single person to 60k for married, and add 10k for each kid, should not pay a dime in tax. make it up from the mega wealthy, I am for taking the tax up on the upper end to 60% or higher, it is the right of any one to make as much as they can, but when you make over a certain amount than you pay a higher tax.

Let me guess....you are single and make under 30K

By the way, the tax system is already set up so "when you make over a certain amount, you pay a higher tax."

I am not even close to the highest tax bracket, but I feel bad for those that would have to pay more than 35% in federal tax. Add in some of the other taxes like Social Security, Medicare, state, local, sales, excise, real estate, and these people are paying 60 to 70 percent in tax. If I remember correctly we had a policy of 70% or higher tax on the rich in the pre-Reagan days and it wasn't pretty.

There is a point that breaks the back of even the rich and warps our economy.

 

[ed teach]

The people that I am talking about, are the ones that make 2 million a year and up epically the sports stars that sign contracts for 50 million , movies stars that make 25 million a film, do you really think it is fair for a single mom to pay 15% of 12k and these chum heads pay only 30% I mean to be truthful if I made that kind of money I would not want to pay 60% either, but you know the liberals that are for higher taxes are not for just the high end, they want to tax the little guy just as hard as liberals can never get enough dough to waste.
and you never hear of the elite liberals like Barbra strilips who bitches about tax cuts giving extra to help make up the difference do you.
This is where I get totally sick of the hyprictial left. they want laws made for the "uneducated little guy" who they feel it is their moral duty to take care of because they can not help themselves, what a load of crap.
It is because of that type of thinking that the underprivileged has more trouble then necessary, when you tell some one they are not able to help themselves and hand them a check you have just created a dependant. On the same token I think the government should hold out work opportunities for those that need to jobs,I don't care if it is make work, shoveling side walks in front of municipal building ect. but the libs think that is torture, bull crap, when you work for a dollar it is more precious to you then if some one gives you a dollar. and it teaches how money is earned.
I also believe in a very strong defense, I.E. strong military. but I also think we have lost the war on drugs and should just legalize the dam stuff. If you knew how many homes I have carpeted and when we move the furniture find ozs of pot. and the people that do it. you would walk down the street and never guess. boys we lost that one, time to tax it.
And another source of income, there is not constitutional exception for tax on religion, we should start a tax on all religion, no more free ride. if you want to pray you have to pay.
And of course the government has to cut spending in stupid areas like midnight basketball. but increase spending on prisons, we need to let people know who don't want to fit into society that if you hurt, rob or steal, you will do time, and if you kill, you will be put to death.
Then we need to put a leash on the rapist attorneys, who sue over things like Arabs need to keep their burkas on for id photos.. or the schools now operating in the us run by the Saudi's teaching America is bad. shut them down, and deport any one who is a possible threat, just because you are here does not give you rights to be here. liberals and their open up the us for any one who want to come in is bull shi! in the first order, this country will collapse from with in if they had their way, but that is what they have wanted all along.
they could not change it in the 60s so burn the dam thing right boys?

 

[John Galt]

Goldang ed, you are making me look pretty warm and fuzzy, almost moderate in my views unlike the flaming
radical that I am. You showed up just in time.
Live long and prosper

JG

 

[KB]

John, I was just thinking the same thing

 

[FlowGirl]

Doesnt that seem sort of inequitable though Ed?  Since I have only the same rights and whatnot as everyone else and the same opportunities...why exactly am I supposed to shoulder this increased burden again?

(And before any quacking about the opportunities goes on, I have no formal education past high school, was on my own since I was 15 and got no help or special treatment from anyone).

Isn't there something of a paradox here? If there's truly nothing special about your background or skills, and you received no special assistance along the way, then isn't this an admission that a lot of your success was simply a matter of "right place, right time." I fully admit that hard work, determination, personality, and good life choices play a role in success -- my own extended family climbed from absolute poverty to middle class by having these traits in abundance. But I also don't see how working harder (or even smarter) would catapault them into the multi-millionare category.

Not picking on you specifically TH, and have no idea if Ed's plan would be better than what we already got, just trying to come to grips with the mix of hard work and random chance in my own success. I don't think the matter of equity in taxation is an easy one.

 

[vicky]

Inflation is a general increase in prices across the economy over a period of time.  

However, most things go up in price over time. The only question is how much.

I think the biggest inflation factor is what people consider is what they 'need'.

We just bought another house that was built in the 50's. It was a normal middle class home at that time and just over 700 sqft in size. When I see my colleagues nowadays buying their first home, it is a brand new 4000 sqft house. (luckily Rooms-To-Go etc. has buy now pay later to fill up that monster). That is the size of a 4-6plex, little big for a starter I think. When there is a baby on the way, the car must be upgraded to a Volvo or Lexus SUV for minimum safety. And there are so many wants perceived as 'necessary'. Of course it will be difficult to RE if material expectations beat inflation over and over again.

Vicky

 

[Nords]

But I also don't see how working harder (or even smarter) would catapault them into the multi-millionare category.

The harder I work, the luckier I get. (Samuel Goldwyn)

Chance favors the prepared mind. (Louis Pasteur, commenting on exploiting unexpected failures in laboratory experiments.)

I think that there's always a random element of chance in everyone's life. But being ready to recognize & exploit each one of those opportunities is analogous to being given 10,000 lottery tickets to the next random-chance drawing...