Will You Meet/Beat Inflation in the Long Term?

[Badger]

At the moment my AA is 37% stk, 15% bonds and 48% cash. This changes every year when RMD is put into cash. For the most part we live on a couple of small pensions and SS and rarely use any investments/cash except for gifts and taxes. Medical expenses and a home to live are all taken care of and we are debt free.
Since we both have some health issue I figure we have 10 years (if lucky a few more) when we reach 85 so I don't see inflation being a problem.

Cheers!

 

[enjoyinglife102]

More worried about heart disease, cancer, and random other stuff than inflation. I can fight inflation much easier than pancreatic cancer.

+1
I'm at 30/70. Based on the past and what some guys like Ben Ghraham and Rick Ferri have recommended, this seems to be good balance between risk and return while in retirement. I'm much more focused on the return of the money and enjoying the life it can provide now in my healthy years at the age of 64 than the return on the money over the next 30-40 years. I know lots of people who went back to work because the stock market tanked but no one who went back to work because they generated a conservative return.

The only thing certain about the government's reported inflation rate is that it has nothing to do with the rate any one individual experiences. And based on previous posts, most people on this forum successfully deal with whatever they are are experiencing.

 

[jebmke]

My AA is now 45/55; I have no expectations.

 

[Fermion]

+1. At 57, I already have decreased stamina, and some health problems that are keeping me from diving as much as I'd like. I'm more concerned about maintaining health than inflation's eroding effects over 30-40 years. If I can't dive, I likely can't travel, and my spending will plummet.

Much like our health, I figure our money will go until it doesn't. I will evaluate options for both when that day arrives. You really just can't know what the government will do in the future.

 

[old medic]

We are hoping too...

 

[Chuckanut]

No idea if I can beat inflation in the long run, which I define as 10+ years.

SS is COLA’d which is good. But my pension is COLA-lite so I have lost ground on 2021 and 2022, and most likely will lose again in 2023.

My biggest problems are state and local tax increases which have devoured over 50% of my COLA adjustments for the year, before taxes. Not so good.

 

[brett]

Do not know. We hope that the trend of the last 12 years continues for the next 12 years, even if it is at a lower net rate

The past 12 years since retirement have been very good for us from the perspective of investment gains net of inflation. Much, much better that we had conservatively f'cast prior to retirement. Sequence of returns also helped. Only 20 percent of our run rate pension incomes have COL attributes.

We see two types of inflation. The typical inflation stats and the actual inflation that hits us as retirees based on our expenses and our lifestyle.

We are currently at 45 fixed. This has moved up from 30 since we retired. Both in our early seventies.

We are experiencing inflation hit one of our largest discretionary spend areas....travel. Prices are up anywhere from 10 to 30 (sometimes more) percent depending on location. Net of currency Airfare in particular.

Same with capital items. Replaces a fridge and washer/drier over the past 3 years. Prices were definitely up. Combo of currency and inflation.

 

[Dash man]

My AA is 72/28 with the majority of my equities in dividend growth stocks that on average increase their dividends significantly more than inflation.
Ask me in 25 years if it worked. I’ll probably be hard to get in touch with by then since I’ll likely be six feet under.

 

[Montecfo]

Well. If things have worked so far it is a good sign.

 

[FLSUnFIRE]

I experimented with FireCalc and FiCalc to figure out the historical asset allocation required to match inflation. Pretty easy to do. Using a 40 year horizon, it takes an AA of 19/81/0 to get 100% success. I know that this doesn't encompass social security (incoming $) or taxes (outgoing $).

Here is a link to it.

I think few people would allocate so conservatively, though I'm close to it at 30/65/5. Based on the FiCalc output, I hope to at least match inflation and taxes with my AA. But my own financial plan, which has been criticized on every forum I've posted as being too conservative, uses an expected real return of -1% CAGR.

I dare to ask how foolish I am with this so instead I'll just ask...
What is your AA and what real return are you expecting from it in the long run?

Almost 2 years into my FIREd life and my NW is 89% of the starting value. I'm not worried about inflation at all!

 

[audreyh1]

Well. If things have worked so far it is a good sign.

I’m well aware that from 2010 through early 2021 we were in a very low inflation environment with a strong bull market so it was possible for our investments to get well ahead of inflation. Then things changed…….

We’ll just have to see what happens now.

 

[jollystomper]

With roughly 33/48/17 AA, we still have more than what we had when I retired almost 5 years ago. Also, one can, do a degree, adjust one's living for inflation without impacting one's desired quality of living. So we will see.

The strangest anti-inflation thing we are seeing: Since retiring our energy bill (we are all electric) has actually fallen from over $320/month to $165/month. Some of this might be attributed to youngest child moving out (but it started falling before then), or relatively mild winters the last 5 years, or a duct system cleaning for the first time in early 2021. But still, to fall by almost half is something we will enjoy while we can .

 

[pacergal]

We hope too, we blessedly have secure income with SS and pensions, however our pension is diet COLA, at 2% max each year.

 

[Koolau]

Seems to me, if I was going to be extremely conservative, I'd just buy actual TIPs and I-bonds.

In reality, we are about 80% stock, it's really hard to know as the handy allocation graphs at the brokerages don't seem to count bond funds as bonds, they always miss something to make it not accurate.

I track our net worth and actual buying power (inflation adjusted), both are up since retirement 9 years ago.

Yeah, if I could wave a magic wand and convert my entire portfolio to I-bonds (all of late 199X vintage) I think I'd wave that wand. YMMV

 

[Montecfo]

I’m well aware that from 2010 through early 2021 we were in a very low inflation environment with a strong bull market so it was possible for our investments to get well ahead of inflation. Then things changed…….

We’ll just have to see what happens now.

We are in an interest rate driven bear market. No one beats even 2% inflation with the stock market declining. But the principles that allow us to beat inflation have not changed.

And inflation continues to edge down- headline annual figure at 4.9% as of this morning, below expectations.

 

[Fermion]

We are in an interest rate driven bear market. No one beats even 2% inflation with the stock market declining. But the principles that allow us to beat inflation have not changed.

And inflation continues to edge down- headline annual figure at 4.9% as of this morning, below expectations.

It sounds good, but inflation is still well over 100% higher than the desired rate.

 

[Montecfo]

It sounds good, but inflation is still well over 100% higher than the desired rate.

Agree. But 10 monthly declines in a row establishes the downward trend in my view.

 

[brett]

I guess it depends on what your personal 'long term' is.

We are in our very early 70's. Our current long term investment horizon is 20 years.

At early retirement, age 59, our long term investment horizon was 30 years. We geared our investment allocation and spending to this horizon. In the rear view mirror this was the absolute right strategy for us.

Will our long term investment strategy or outlook change because of variables other than age number It could. Health, market variables, inflation. Who really knows what is around the corner.

The only plan we have to combat inflation or have net of inflation total portfolio gains or at worst remain neutral, is stay tuned, not get complacent, rely on the direction of those whose investment advice and counsel have served us well over the past 14 or so years. It is the best we can do.

We do not know the answer. We just have to do the best we can based on the information, market trends, and counsel that we have at the time.