Author Topic: Have your expenses risen post-fire with inflation?  (Read 3711 times)

rmorris50

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Have your expenses risen post-fire with inflation?
« on: September 07, 2020, 07:38:33 PM »
I'm curious as to people's experiences with their post-fire expenses and inflation. At the moment I am assuming 2% inflation on all my post fire expenses in my "when can I FIRE" projections. I wonder though if this is too simplistic and actually too conservative.

First, there is the whole idea that expenses are higher in the early go-go years of retirement, and spending actually decreases as you age. Second, inflation varies significantly by consumer category. College and healthcare has very high inflation. Electronics has deflation, and cars and clothes have been flat. Food I think has some moderate inflation, depending how healthy one eats.

I plan to carry my fixed mortgage into retirement, so that won't go up. But property taxes will. Etc, etc.
 
So for those that have been FIRED, has your expenses been going up? Have they stayed flat or gone down over the years? I know healthcare is a big wild-card, but my spouse and I plan to use our Roths for "non-routine" HC expenses only, otherwise we will pass the Roths on to our heirs. I know most others don't have that luxury.

To give context, I already have a fat fire, with LOTS of conservatism, budget starting at $120k a year for my spouse and I. In about 30 years that has us spending 200k a year! Of course it's possible, but I'll be 76 and my spouse 81. Putting health care aside (remember, Roths), are we really spending 200k a year at that age? Some of our expenses will go away as time passes, but I'm sure we will pick up others. if I cut out my conservatism and nice vacation budget, we are down to 100k a year. I feel like between managing the expense side, and slowing down over the years, could we possibly just stay at a flat $120k a year, outside of extraordinary economic conditions. This seems to go against everything we've been taught about retirement planning though.

This makes a big difference in determining how likely our money will last. So curious as to what FIRE folks have been experiencing.

Greystache

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Re: Have your expenses risen post-fire with inflation?
« Reply #1 on: September 08, 2020, 09:34:01 AM »
My wife and I have been retired for five and a half years and we have not adjusted our budget for inflation yet.  Our budget is fairly high ($60k per year) so we have lot of wiggle room.  Our house is paid off and we live in CA, so our property tax does not increase. We use an ACA bronze plan with and HCA. The deductable is huge, but so far we have been fortunate and have not had to spend more than a few thousand dollars out of pocket in the worst year. Our monthly premium has fluctuated between $90 and $240 per month over the years. Our biggest single budget item is travel, around $10k per year. This year we should be under budget due to reduced travel.

Monkey Uncle

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Re: Have your expenses risen post-fire with inflation?
« Reply #2 on: October 05, 2020, 04:50:32 AM »
As far as consumer price inflation goes, no, our expenses have not risen.  Total basic expenses have actually fallen slightly.

Lifestyle inflation is another story.  I find myself having a much stronger desire to travel than I had pre-FIRE.  We've got around 10k/yr above basic expenses that we could spend on travel or other luxuries.  I'd probably do more than that if I could.  I was not anticipating that at all before I FIRED; we're lucky that we managed to jump into FIRE with a modest surplus beyond the bare-bones stash.

In your situation, I would not be worried about consumer price inflation at all.  If you're spending 100 grand a year, you've got so much fat built in that you should be able to cut a great deal out if the need ever arose.

deborah

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Re: Have your expenses risen post-fire with inflation?
« Reply #3 on: October 05, 2020, 06:17:36 AM »
Of course expenses go up with inflation. So do your earnings, unless you have most of your investments in cash, so I expect youíll be ok.

However, weíve been living in a time of low inflation, so I havenít noticed inflation increasing our post-FIRE expenditure. Most people who have FIREd seem to find that they expected to spend more than they actually do - at least at first.

Gone Fishing

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Re: Have your expenses risen post-fire with inflation?
« Reply #4 on: October 05, 2020, 07:55:30 PM »
I've noticed some inflation, but not enough to matter.  Notice it a bit more when we travel to larger cities.  $6-$7 for a pint is a bit rich but not enough to break the bank.

matchewed

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Re: Have your expenses risen post-fire with inflation?
« Reply #5 on: October 06, 2020, 04:44:05 AM »
Also keep in mind that looking back at inflation over the last X number of immediate years isn't a good model for future inflation.

But deborah has the right answer. Earnings and investment returns should track inflation. Could be a chance they don't so plan concervatively.

2sk22

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Re: Have your expenses risen post-fire with inflation?
« Reply #6 on: October 06, 2020, 12:31:53 PM »
Of course expenses go up with inflation. So do your earnings, unless you have most of your investments in cash, so I expect youíll be ok.

However, weíve been living in a time of low inflation, so I havenít noticed inflation increasing our post-FIRE expenditure. Most people who have FIREd seem to find that they expected to spend more than they actually do - at least at first.

The other point is that inflation is not evenly distributed: healthcare and college education costs have risen much faster than inflation but some other costs have actually fallen. So the actual inflation number you need for your planning purposes is by its very nature very personalized.

mjones1234

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Re: Have your expenses risen post-fire with inflation?
« Reply #7 on: November 09, 2020, 11:12:42 AM »
I don't really experience much inflation, but that's because I've moved to buying almost everything second hand. During the week, I can hit estate sales, antique stores and storage building flea markets. I'm buying tools for a tenth of the price in these locations. In addition, I find myself with the time to seek out better deals on food, hunt and fish more, etc.. My truck barely moves and because of that I've cut insurance to liability only (it's a $1300 Toyota). I've found my monthly expenses have been slashed in half, I'm healthier and never eat out. I'm getting to the point where I can't imagine a restaurant making better food than I can put together in my trusty cast iron skillet. No more gym memberships either. My workout takes 15 minutes with a rapid 100 push ups, sit ups, curls and sprints. No gassing up the truck to drive to a gym and spend an hour getting less results. I could go on, but no inflation on this front.

Cassie

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Re: Have your expenses risen post-fire with inflation?
« Reply #8 on: November 09, 2020, 11:25:51 AM »
Before Covid we were spending more on vacation, experiences, eating out, etc. Groceries have gone up a lot. Otherwise no real inflation.

secondcor521

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Re: Have your expenses risen post-fire with inflation?
« Reply #9 on: November 09, 2020, 01:21:37 PM »
It depends what you mean by inflation and what perspective you want to take.

I'm 51, single, and FIREd 5 years.  I don't budget but I do track and pay attention to my expenses.  Over that 5 year period, I have monthly total expenditure data points, and the best fit exponential curve in Excel seems to show a personal annualized inflation rate of about 0.5% whenever I've tried to measure it.  So my rate is lower than the general CPI.  Not surprising; my house was paid off during that time, and my medical expenses have been low.

My monthly spend data points, though, has varied over that five year period by a factor of more than 2 - that is, my most expensive month cost me over twice what my cheapest month did.  So there is quite a bit of variability.  I usually address this by looking at my most recent six months of expenses, which captures most of the seasonal and month-to-month variability of things like property taxes, heating/cooling bills, etc.

When an inflation rate is low enough for long enough, it can essentially be ignored.  But inflation is both exponential and ratcheting, so if we have a return of high inflation for long enough it will be noticeable and unavoidable.  It is an interesting historical and macroeconomic question whether we will ever see inflation come back as it was in the 70's.

There are also interesting questions about cost of living changes related to phase of life.  Younger retirees who have fatFIRE budgets and confidence probably want to spend more on travel etc. while healthy enough to do so.  There is also some risk associated with high medical expenses towards the end of life.  My observation of those in my Dad's retirement community over the past decade indicates that this is largely self-limiting:  if you're incurring high medical expenses long enough, your life expectancy is short enough to where you won't run out of funds.  The one exception to this rule seems to be some with Alzheimer's and other dementia-type illnesses where sometimes the mind is gone but the body lives on in a $8K/month memory unit for another decade.

There are, of course, many defenses against inflation:

1.  Own things that respond well to inflation.  Stocks, TIPS, gold/silver.

2.  Buy things that help you avoid inflation.  Paid off homes, attic insulation, solar.

3.  Substitution / lifestyle adjustment.  Don't buy steak.  Skip a cruise.

4.  FatFIRE / buffers.

5.  Geographic arbitrage.  Move to Malaysia.

5.  Work.  Wages usually beat inflation.

6.  SS.  Adjusts for inflation, even if not perfectly.

I'd also echo what someone else said upthread - once you retire, you have less stress, and that lowered stress translates to less stress-induced spending.  I used to eat out much more than I do now, and a lot of that was stress-induced - a Wendyburger with all that fat, carbohydrate and salt is just the thing to take the edge off an annoying staff meeting.

And the time thing is really true too.  With more time and mental bandwidth, I can switch a prescription from one pharmacy to another to save $7.  Or even spend more time taking care of my health so I don't get sick as much and don't need as much medicine.  Or make sure my car insurance is with the cheapest/best provider.  Or notice an overcharge on my credit card and get that fixed.  I also have the flexibility to plan my travel at the cheap times, so later this month I'll be in the Caribbean for about a week and a half - I bought the ticket in the spring during the virus travel panic, and got great deals on flights and hotels.  So overall I'm living a nicer lifestyle on less money.

soccerluvof4

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Re: Have your expenses risen post-fire with inflation?
« Reply #10 on: November 11, 2020, 04:46:17 AM »
Before Covid we were spending more on vacation, experiences, eating out, etc. Groceries have gone up a lot. Otherwise no real inflation.


This +1. Before Covid we were able to come under our budget, since Covid we have really been under our budget BUT the only costs I have seen go up is Groceries and though were not big shoppers of new clothes etc.. for those that are it seems at least where we live you can buy alot on the cheap these days.

Omy

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Re: Have your expenses risen post-fire with inflation?
« Reply #11 on: November 13, 2020, 09:29:32 AM »
We've been living well spending $4k per month for decades. Admittedly, there's plenty of fat in that number, so it seems like if one area gets a bit more expensive other areas get cheaper to make up for it. When we FIREd, I thought expenses would increase because we were now paying $1150 per month for COBRA. But our monthly gas expenses and eating out expenses dropped even more...so magically we're spending a bit less than $4k per month.

Cranky

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Re: Have your expenses risen post-fire with inflation?
« Reply #12 on: November 13, 2020, 04:39:43 PM »
We've been living well spending $4k per month for decades. Admittedly, there's plenty of fat in that number, so it seems like if one area gets a bit more expensive other areas get cheaper to make up for it. When we FIREd, I thought expenses would increase because we were now paying $1150 per month for COBRA. But our monthly gas expenses and eating out expenses dropped even more...so magically we're spending a bit less than $4k per month.

Iím not spending $1100/month on gas and eat, by a long shot, so not much savings to be had there! LOL

It seems like itís so variable - weíve not really had any work expenses to save on.

I think inflation hits you mostly with housing expenses and medical costs. Other stuff you can compensate for.

Dicey

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Re: Have your expenses risen post-fire with inflation?
« Reply #13 on: November 23, 2020, 10:04:26 AM »
I'm surprised no one else has asked this yet. Why do you plan to  fritter away spend your Roths on healthcare? At your income level you should be able to cash flow everything short of a catastrophe.