Personal Inflation Rate

[Mysto]

I am going over my retirement expense budget. We are looking at a permanent move and wanted to see the effects on our retirement plan. I'm finding a disturbing trend. Our personal rate of inflation appears to be about 7%. Increases in HOA, insurance and medical, utilities, taxes, travel, have all gone way beyond the 3% mark. I just started SS at the end of last year and next year with a 0% cola thecola portion from my retirement savings rises at an even higher rate. When I project out 10 years things are looking pretty tight at this new expected rate and that's without the expected rise in inflation that we are being warned of.

What are you finding? What rate are you guys using?

 

[W2R]

I am going over my retirement expense budget. We are looking at a permanent move and wanted to see the effects on our retirement plan. I'm finding a disturbing trend. Our personal rate of inflation appears to be about 7%. Increases in HOA, insurance and medical, utilities, taxes, travel, have all gone way beyond the 3% mark. I just started SS at the end of last year and next year with a 0% cola thecola portion from my retirement savings rises at an even higher rate. When I project out 10 years things are looking pretty tight at this new expected rate and that's without the expected rise in inflation that we are being warned of.

What are you finding? What rate are you guys using?

I'm pretty sure my personal inflation rate is high, like yours. Surprisingly, I am spending less than last year and last year's spending was less than the year before. Life is a bowl of cherries, and I just don't need or want much these days now that I have my freedom.

If/when I use an inflation rate, I use the CPI-U.

 

[Pete]

This last year,

Auto insurance costs are down because of my higher age. Utilities down (big reduction in cell phone costs-don't know why Verizon lowered the price, Edison A/C recycling $30/month reduction for the 5 summer like months, water down due to new efficient washing machine). Transportation down-no more commuting. Food costs steady. Property taxes up 2%-hurray for Calif prop 13. Health and dental costs down (insurance paid by retirement, $4 Walmart prescriptions).

All the have to's are steady or down. All the want to's are way up, but are one time charges....toys.

 

[walkinwood]

There are some great issues being brought up on the board in the past few days!

I have only two years of ER data and find it difficult to determine what can be attributed to inflation and what to increased/decreased consumption. Some categories are quite easy to determine and the implications are not good. Property taxes (4%) and Health Insurance (15%) are up more than inflation. These two categories form a large chunk of our spending and if they keep increasing more than inflation, that means there will be less for other categories.

Our funding plan depends on a portfolio of 60% stock and 40% bond/cash. We take 4% of the annual portfolio value (ie no automatic inflation adjustments), and are not counting on the value of our home or social security.The hope is that, in the long run, the portfolio & resultant SWR will grow faster than inflation, and SS will help out too. In the immediate future, if the withdrawal is less than what we can live on, I will go back to work to make up the difference and/or repair the portfolio. We are also planning to move to a lower cost of living area, but that's a one time adjustment.

A fixed real income plan - say based on 100% TIPS, a COLA'd pension or SS is at risk of not keeping up with personal inflation if it is, as in your case, greater than the CPI.

It sometimes amazes me that my plan, though it has been proven to work in back-testing, relies so much on hope - and flexibility.

 

[mf15]

Hear us just a little tidbit. Bought a new Ford Escape with X plan and 2000 in rebates plus a 750 coupon. Cost 2000 or so more than our 05 Escape. But also bought a full size spare tire cost me 406 which is crazy and it is on a steel wheel. The old escape the full size spare either came with it or it was 85 bucks. Yes the tires are better quality than the on the 05 but wow. Also X plan not as good they now charge about 450 for a Ford advertising fee per car, wow.
On another note my lease on the 07 Acura TL is shortly over, that will save me 409 a month. Not buying the car out, best car I ever owned, think I am going to cry when I turn it in. So I now get to drive the 05 Escape, wife has the new one.
The days of my old man cool car are over. Of course when I first leased it I never thought I would be retired before the end of the lease.
Old Mike

 

[Bikerdude]

After 10 yrs of retirement the amount I now spend (yearly) is = to a 3% average inflation rate*. I have had good yrs and bad. Same as life in general.

*Note: this does not include one time large expenditures like car or expensive vacation. Those items come out of my "fluff" fund.

 

[dex]

Also X plan not as good they now charge about 450 for a Ford advertising fee per car, wow.

Pay a delivery charge - not an advertising fee. On the new cars I bought and they tried that I said - 'Don't insult me - take that off.' after a few words they did.

 

[IndependentlyPoor]

Are Ford dealers just trying to alienate customers? An advertising fee as a line item? Sheesh!

 

[mf15]

The advertising fee is a line item right on the x-plan invoice,its not the dealer it is Ford. I asked the dealer, I said well I see no Ford advertising in the local Philly papers, he said it covers internet and I guess TV. X plan used to be a good deal, now not so good, but I am more upset about the cost of a full size spare tire, crazy.
Old Mike

 

[walkinwood]

Hear us just a little tidbit. Bought a new Ford Escape with X plan and 2000 in rebates plus a 750 coupon. Cost 2000 or so more than our 05 Escape. But also bought a full size spare tire cost me 406 which is crazy and it is on a steel wheel. The old escape the full size spare either came with it or it was 85 bucks. Yes the tires are better quality than the on the 05 but wow. Also X plan not as good they now charge about 450 for a Ford advertising fee per car, wow.
On another note my lease on the 07 Acura TL is shortly over, that will save me 409 a month. Not buying the car out, best car I ever owned, think I am going to cry when I turn it in. So I now get to drive the 05 Escape, wife has the new one.
The days of my old man cool car are over. Of course when I first leased it I never thought I would be retired before the end of the lease.
Old Mike

Could you share how much more the new car cost over the old in percentage terms? And what inflation rate does that translate into?

 

[walkinwood]

After 10 yrs of retirement the amount I now spend (yearly) is = to a 3% average inflation rate*. I have had good yrs and bad. Same as life in general.

*Note: this does not include one time large expenditures like car or expensive vacation. Those items come out of my "fluff" fund.

Thanks for sharing. Do you buy your own health insurance?

 

[mf15]

Yes, in round numbers that is about 8.5%,this is for the same car XLT V6 AWD. But they of course made some improvements, 40 more HP,SYNC/Bluetooth for your phone,blind spot mirrors,better tires,somewhat nicer interior,better sound proofing, but they took off the rear disk brakes and replace with drums. Perhaps there are more improvements not sure.

As far as medical costs go, my wife was on my plan at work for about 95 a month with dental, now she is on medicare with a med advantage plan which has dental the total is 192.5/month which is about 200% increase
Old Mike

 

[Bikerdude]

Thanks for sharing. Do you buy your own health insurance?

I contribute a portion to a retiree subsidized health plan. My premium cost since retirement has gone up 120% and I pay increased deductibles and out of pocket maximums.

 

[dex]

I contribute a portion to a retiree subsidized health plan. My premium cost since retirement has gone up 120% and I pay increased deductibles and out of pocket maximums.

My BCBS plan just went up 40% because I turned 55. Previously, I have been able to keep the percentage lower by changing plans, asking for a rollback or changing deductibles. I don't think many people do what I do.

 

[ESRwannabe]

My inflation rate from 2008 to 2009 was 2.55%. All of it came from an increase in taxes and health insurance costs. My living expenses were actually down -1.25%.

 

[Pete]

Getting on food stamps with the other 40 million Americans should help.

40 million Americans rely on food stamps, new record | Global Crisis News

 

[kramer]

I am a relatively new FIRE-ee at 3.2 years. I didn't track expenses as precisely early on like I do now, but I have a pretty good idea. It seems like my expenses have been steadily decreasing.

I am a perpetual traveler and seem to have gotten better at it over time. Also, I am spending less than I thought when I retired. I am only spending 2% of my portfolio now.

I do expect my expenses to go up from now on now that I have settled into more of a pattern so that normal inflation takes hold. Actually, it is mostly because of government -- higher taxes in 2011 and beyond and more importantly the new Health Care Law will probably be a huge new expense for me, it is a much larger tax than the higher tax rates coming in 2011.

 

[SecondCor521]

Over the past 41 months my personal inflation rate has been a bit below zero. For example:

February 2007 expenses: $5,538.07
May 2010 expenses: $4,727.05

I project 3% but have no reason to expect that to actually occur. My income taxes are up significantly because I am earning more, but many of my biggest expenses are dropping:

property taxes - likely down due to lower assessment rates and a state inflation cap
interest expenses - amortization on a 15 year mortgage and slowly paying off the student loan
child support - ex got a job with a better salary, so my amount went down. Will go down further in the future as my kids leave the nest.

2Cor521

 

[Finance Dave]

Not FIRED yet, but I use a budget by "category" method.

For some items I assume they will go down, like real-estate taxes as I move into a smaller home. For others, they will go up, like medical. Overall I'm assuming about 4% inflation.

The silver lining of the recent recession is that prices on most items have stayed low. Groceries, utilities, gasoline, etc. And some items have gone WAY down like restaurants (have you seen all the "specials" being offered by the major chains?) and some vacation expenses.

 

[dex]

I am a relatively new FIRE-ee at 3.2 years. I didn't track expenses as precisely early on like I do now, but I have a pretty good idea. It seems like my expenses have been steadily decreasing.

I am a perpetual traveler and seem to have gotten better at it over time. Also, I am spending less than I thought when I retired. I am only spending 2% of my portfolio now.

I do expect my expenses to go up from now on now that I have settled into more of a pattern so that normal inflation takes hold. Actually, it is mostly because of government -- higher taxes in 2011 and beyond and more importantly the new Health Care Law will probably be a huge new expense for me, it is a much larger tax than the higher tax rates coming in 2011.

The same thing happened to me.
07-08 15% decrease
08-09 20% decrease
09-10 7% increase est.
10-11 12% increase - I keep about 10K in discretionary $ in my estimate
11-12 3% increase

 

[kcowan]

We have been tracking our expenses since retirement in 2002 and the run rate to 2009 was +4% a year. We did all the normal downshifts like VOIP for LD (MJ) and pay as you go plans for cell phones. We also share satellite service between our two homes. When we leave to snowbird, our high speed internet drops from $49/mo to $2.99 (website and email address maintenance).


Our pension is not COLAd so we were concerned. But if the portfolio resumes it upward trajectory by 3% over our infaltion, we should be able to live forever!

 

[Independent]

I'm sure that in the past my personal inflation rate has been different from the CPI. However, I have trouble with a long term projection that says I'll be higher than the CPI over an extended period of years. I don't know which items within the CPI will be more or less important to me relative to other consumers. So I just use CPI as "expected" and a percent or two above as "bad scenario".