xFI - does inflation matter?

[Route246]

If you are xFI (multiple times FI assets than you need) does inflation concern you?

I have found that when I was young and living paycheck-to-paycheck, with significant mortgage and expenses, high savings rate, etc. I would be very concerned over increases in food and gasoline prices because I was always cash-constrained while maintaining savings discipline. I developed a hatred for big oil and others who manipulated markets and gouged the public.

Once I acquired multiples of critical mass (FI) things like inflation, price increases, etc. are now just annoyances but have almost zero impact on my quality of life, spending habits, etc. I still live in a cash-disciplined way, still shop at Costco and still take advantage of sales and markdowns and do not waste cash on frivolous things but inflation is the least of my worries these days. Trying to stay healthy is a top priority as is staying on top of important things like family matters and estate planning.

 

[Spock]

It depends on the size of "x" in your xFI. The PMT equation in my spreadsheets claim I could be spending 4x my annual burn rate in order to drain my savings in a projected life span.
However even at the Fed's alleged target of 2% annual inflation my savings will be cut in half during that same time period... a 5% rate chops it to less than 1/4.
So... yeah... if 'x' is really big such that you light cigars with hundred dollar bills I suppose inflation doesn't matter.

 

[Montecfo]

If you have many times what you need, no it does not matter much.

And I know some folks are a lot more concerned. But in my planning I assume a real 3% annual growth on overall portfolio and use current year expenses. I do not inflate them since my portfolio growth is already deflated.

Assumption is that investments will outrun inflation which appears reasonable. But I have quite a bit of buffer (but no pension).

 

[MarieIG]

It's not all about me.

I do have concerns for others.

 

[audreyh1]

I track real growth, and it so far I’m better able to keep ahead of inflation when it’s low.

Does it matter to me? Maybe not. It probably matters to my heirs. For their sakes I prefer low inflation.

 

[marko]

To be perfectly honest, we haven't noticed. Not one iota.
Don't see it affecting us any time soon.

 

[Gumby]

I prefer inflation to be < 2% because my pension is diet-COLA, with a 2% minimum. Above 2%, I get only 60% of the CPI increase, with a 6% max. The young wife's COLA provision is more complicated, incorporating performance of the pension fund, but suffice it to say that this month's annual COLA for her will be only 1.5%. So, if high inflation persists long enough, we'll need to start drawing from our portfolio for regular living expenses. If it hovers around 2% or less, we can avoid that forever.

To be honest, a 4% draw on our portfolio would exceed our current pensions and SS, so I don't worry much.

 

[Montecfo]

It is a valid point that inflation can hit pensioners more if uncola or diet cola!

Had not thought of that but then again was not sure what it was at first.

 

[LateToFIRE]

Hmm, yes and no. Current situation is FI with RE just around the corner. Hard to say what the x in xFI would be, but put it to you this way - most financial models are telling us that we'll die with a larger portfolio than we FIRE with. Plus, for sure, with some modifications, we could live on a somewhat lower budget, and still live what most would consider a very satisfactory retirement lifestyle.

I know this because for a time I handled the finances for my (now deceased) aging in-laws and they had a truly great retirement splitting time between two homes in different climates - all on far less income/assets than we have even accounting for inflation.

Once FIRE'd, I do think we would have a sharper eye on expenses, but that would be the case no matter inflation. That's just in our nature - we'll feel nervous for a year or two until we settle into it.

Would say that while recent inflation has not affected our household spending (food, clothes, eating out, travel, etc.) it has made us think twice about potential big-ticket spending. For example, I've put off buying a new car (I should say "newer" car as actually have never owned brand new). Cars just seem sooo expensive these days. And there are some other big-ticket toys I've put off buying - the enjoyment vs the cost equation just seems out of whack lately (edit: that equation may well change when I finally RE and have more leisure time on my hands). Plus, had been playing with idea of buying a warmer climate condo, but that too is on hold until r.e. markets cool off. Maybe you wouldn't call all this "inflation" behavior exactly, just sticker-shock behavior.

 

[Route246]

I also have concerns for others, however for my own selfish sentiment it just doesn't affect my day to day decisions. Like I said it is just an annoyance.

That said, the pondering I have about inflation is that since the wealthy control the government, the banks, business, commerce and politics....I'm guessing when the topic of inflation, high cost of food, high cost of energy they really have no skin in that game and their behavior reflects this.

Since I am no longer a natural advocate for calling out big oil, big banks and big business for gouging consumers I don't really care anymore. I have an EV, a plug-in hybrid and a supercar. The supercar gets about 6-7 mpg but I don't drive it much these days. I spent more for gas for my lawn mower, power washer, garden tools and other gas-powered home improvement tools than I do for driving, except for road trips which is about 10% of our annual miles driven. I hear people complaining about high prices of gas and food and it creates an uncomfortable situation since anything I say may be construed as arrogance and aloofness. It is the same after we paid our mortgage off early when I would hear colleagues complaining about their high NorCal mortgages and I would sit there silent hoping they wouldn't ask me what my mortgage rate is currently at.

It's not all about me.

I do have concerns for others.

 

[Sunset]

Right now, inflation has been noticed by me, but is not threatening.
However, that is because I believe it's going down.

If inflation jumped back to 10% and stayed there year after year, or went higher like it has in the past for many countries. Then even folks that had many times what is needed for FI would be in trouble.

Possibly worse , is before the xFI people got desperate the FI or -FI folks would be desperate leading to riots, etc.
Just like in Venezuela with inflation rate of 1,588.0 %

 

[SecondCor521]

You asked two different questions.

Q1. Does inflation matter?

Yes, because it impacts my asset allocation. I will probably live a few more decades and would rather not work, so I need to invest in things which I believe will beat inflation over that time frame.

Yes, because the Federal Reserve increasing rates to bring inflation back to its 2% target means higher borrowing rates, which impacts the ability of my children to afford their first homes.

Yes, because as inflation occurs, it reduces the spending power of my net worth. Ceteris paribus, I'll get less when I BTD.

Q2. Being xFI, does inflation concern me?

I'm not worried for myself, if that's what you're asking. Inflation may reduce the amount of money left over for my heirs.

I think the economy in general is going to suffer somewhat due to inflation, especially if it becomes entrenched. But I don't currently think that is likely to happen. I do think we may have some sort of economic contraction soon as a result of inflation and the Fed, but I am hopeful it will be a relatively soft landing.

If we had Venezuela / Weimar Republic hyperinflation, that would concern me. But I think the likelihood of this is very very low.
...

Regarding post #10, I try to avoid people who are generally complainers. A benefit of being FIREd is that I have greater control over those with whom I interact.

 

[Koolau]

One thing that current inflation does is take me back to the mid-late 70s when I was a newly established w*rker bee, dependent upon megacorp for my living. Inflation was very frightening. AND it got a lot worse than today's relatively tame inflation (by comparison.)

Having said that, my pension (starting when I FIREd in 2005) is NOT COLA'd, so it is becoming more and more "modest" as I've always called it. My investments have more than kept me up with inflation (so far) so there's that. But, just in general, inflation is still somewhat disturbing - especially when I can see it affecting the thing that I want to purchase (especially services!)

I also see the needs of those I like to support though charities being put under tremendous pressure as they have no means of increasing their income (other than through pleas - just at a time when many who donate are under their own inflation pressures.)

It's a trickle down effect that those least able to handle inflation are affected most. YMMV