Author Topic: Have your expenses risen post-fire with inflation?  (Read 4831 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.

joe189man

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Re: Have your expenses risen post-fire with inflation?
« Reply #14 on: May 07, 2021, 10:11:04 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.

@Omy  would you mind expanding on this a little? have you really not increased your total spend in decades? inflation can have such big impacts on stash size, i was amazed when i saw this thread and your post along with others saying inflation hasnt impacted their finances much. In my calculations, i am using a 2-3% annual inflation that is making me nervous. Have others found this to be true, inflation isnt impacting total spending over time?

Omy

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Re: Have your expenses risen post-fire with inflation?
« Reply #15 on: May 07, 2021, 09:09:52 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.

@Omy  would you mind expanding on this a little? have you really not increased your total spend in decades? inflation can have such big impacts on stash size, i was amazed when i saw this thread and your post along with others saying inflation hasnt impacted their finances much. In my calculations, i am using a 2-3% annual inflation that is making me nervous. Have others found this to be true, inflation isnt impacting total spending over time?

Every year, Pete reveals his annual spend and he's always around $25k. I have not kept detailed records, but have looked at our totals going out each year and it is consistently under $50k. I believe that we subconsciously adjust...when prices go up in one category,  we adjust and find ways to spend less in other areas so that our total is pretty consistent. This year we saved a ton since we've barely eaten out, our entertainment and travel expenses are near zero, and ACA expenses have been low...so we're spending a lot more in home improvements to make up for it.

Our projections assume 2-3% inflation and 25% tax rate. Our first full FIRE year our tax rate was significantly less than projected and that included a lot of Roth conversions.
And net worth has gone up over 20% since we FIREd...so inflation and taxes are not a concern at this point.


Cassie

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Re: Have your expenses risen post-fire with inflation?
« Reply #16 on: May 08, 2021, 12:01:15 PM »
Pete doesnít live on 25k. He classified many expenses under business such as travel, etc. Plus his house is paid for so that makes a big difference.

American GenX

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Re: Have your expenses risen post-fire with inflation?
« Reply #17 on: May 08, 2021, 09:09:07 PM »
I'm expecting real inflation to be much higher than anyone else is suggesting - and I'm not talking about understated government figures.   Owning my home is getting very costly  My homeowner's insurance is one of my larger expenses and went up over 12% this year.  My property tax continues to go up much faster than my home's market value.

Stopping eating steak isn't going to save you from inflation.  Many of us are already living frugally and have energy efficient homes.  With all the government spending, inflation is certain to get even worse.

Stocks are way overvalued, so don't expect them to track with inflation.  More than likely, you can expect a massive correction, especially when the Fed starts to tighten.  I mentioned this before, but there's no where to hide.

You better plan on working longer or cutting your discretionary budget.

With all my housing related costs increasing, grocery bills increasing, repairs costs increasing, gas, and pretty much everything across the board, I increased my planned required spending budget for early years of FIRE by 25%, which excludes discretionary, meaning I will have much less discretionary spending available in FIRE.  Sad times ahead if you want to FIRE or are already FIREd.

ender

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Re: Have your expenses risen post-fire with inflation?
« Reply #18 on: May 09, 2021, 07:39:23 AM »
Pete doesnít live on 25k. He classified many expenses under business such as travel, etc. Plus his house is paid for so that makes a big difference.

This is one of the things I like the least about MMM as it comes across as blatantly dishonest when you realize this.

Omy

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Re: Have your expenses risen post-fire with inflation?
« Reply #19 on: May 09, 2021, 10:47:35 AM »
If Pete deducts those business expenses, I don't see it as dishonest. I've bought two rental properties in the past decade. I don't consider the expenses for those properties (taxes, insurance, repairs, improvements) as "my" expenses. I look at it as NET rental income and have been pleased to see that increase over the years.

Travel for fun is completely discretionary. If I decide to blow $50k on a once in a lifetime vacation when I usually spend $5k a year, it doesn't mean that my regular expenses have spun out of control...I just had a crazy one time expense for a once in a lifetime experience. So I can see why Pete is counting his regular expenses differently from business and completely discretionary expenses.

My properties (including my residence) are also mortgage free. Does that mean that my expenses are somehow less valid than somebody who has a mortgage?

maizefolk

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Re: Have your expenses risen post-fire with inflation?
« Reply #20 on: May 09, 2021, 10:55:45 AM »
My properties (including my residence) are also mortgage free. Does that mean that my expenses are somehow less valid than somebody who has a mortgage?

Not any less valid, just not an apples to apples comparison. It takes significantly more work/savings to retire with a stash of $600k + a paid off house vs a stash of $600k while renting and a person living off a stash of $600k with a paid off house will be able to spend more on everything else in their budget than a person living off a stash of $600k while paying rent.

As long as people aren't trying to compare who lives the more frugal life/more fatFIRE life there really isn't a need for comparisons so it's moot. Once you get into comparison/contest, or trying to deal with the occasional internet commentator claiming "nobody could live happily on $XXk/year" it just becomes a whole mess.

Cassie

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Re: Have your expenses risen post-fire with inflation?
« Reply #21 on: May 09, 2021, 11:03:57 AM »
Since I am retired I donít spend a lot on gas but itís expensive in the West.  Groceries have gone up considerably. My other expenses are stable. Itís one reason I like to own versus renting.

ender

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Re: Have your expenses risen post-fire with inflation?
« Reply #22 on: May 09, 2021, 12:10:15 PM »
If Pete deducts those business expenses, I don't see it as dishonest. I've bought two rental properties in the past decade. I don't consider the expenses for those properties (taxes, insurance, repairs, improvements) as "my" expenses. I look at it as NET rental income and have been pleased to see that increase over the years.

Sure.

But if you're funding your travel and a lot of your fun from your business, don't come tell me bragging "hey look we only spent $25k this year!" if you rolled a lot of expenses into a side category.

MasterStache

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Re: Have your expenses risen post-fire with inflation?
« Reply #23 on: May 10, 2021, 06:40:54 AM »
If Pete deducts those business expenses, I don't see it as dishonest. I've bought two rental properties in the past decade. I don't consider the expenses for those properties (taxes, insurance, repairs, improvements) as "my" expenses. I look at it as NET rental income and have been pleased to see that increase over the years.

Sure.

But if you're funding your travel and a lot of your fun from your business, don't come tell me bragging "hey look we only spent $25k this year!" if you rolled a lot of expenses into a side category.
+1
This has been/was a hot topic of debate and I believe a big reason he stopped posting his annual expenses. Pete wasn't funding rental units. He was spending on home renovations, travel and even financed a car.

I think it's a bad idea to try and model yearly spending after Pete or anyone for that matter.

Malcat

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Re: Have your expenses risen post-fire with inflation?
« Reply #24 on: May 10, 2021, 07:04:11 AM »
If Pete deducts those business expenses, I don't see it as dishonest. I've bought two rental properties in the past decade. I don't consider the expenses for those properties (taxes, insurance, repairs, improvements) as "my" expenses. I look at it as NET rental income and have been pleased to see that increase over the years.

Sure.

But if you're funding your travel and a lot of your fun from your business, don't come tell me bragging "hey look we only spent $25k this year!" if you rolled a lot of expenses into a side category.

On the flip side, him doing this really inspired me to develop side hustles that would pay for deductible luxuries.

Before covid, I was regularly going out for dinners at the more expensive restaurants, went driving at a race track, attended galas, did paint nights, cooking classes, wine tastings, attended really cool presentations, was part of multiple high end clubs, etc, etc and I never paid a single after tax cent for any of it.

I hadn't paid for an expensive meal in 4 years, and I was a known regular at my favourite restaurant.

I didn't look at it and think "that's disingenuous" I looked at it and said "that's brilliant".

Pete, in my opinion, is WAY cooler for having engineered this really great life for himself that costs him so little out of pocket than he is for having saved and almost irrelevant 600K nest egg while working for 10 years. That's literally the least interesting and least profitable thing he's done, and it's the one thing I have zero interest in emulating.

He's not a guy who worked for 10 years at an engineering job and then retired and lived on 25K indefinitely. That's just not his story.

He's a guy who thankfully only spent 10 years working a day job before he had saved enough to feel confident to start living the life he *actually* wanted, where he ended up WAY more successful and found way to keep his out-of-pocket expenses crazy low.

He has over and over and over again said that his goal is to live his best life, not to be as frugal as possible, and not to save as much as possible.

His thing has always been about thinking outside the box, challenging the norm, and considering doing things a different way.
That's what he's doing.

To me, he's staying totally on brand, being honest about it, and doing something that, to me, is an amazing model for how dynamic retirement can be.

You want a great hedge against inflation? Learn how to get other people to pay for your luxuries. It's a big part of my plans.

Omy

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Re: Have your expenses risen post-fire with inflation?
« Reply #25 on: May 10, 2021, 08:00:19 AM »
You articulated it way better than I did, Malcat.

My 2 rental units and my other passive business activities generate enough income (and tax breaks) to fund a fat FIRE that is fairly well protected from inflationary forces. We "retired" in August 2019 and haven't taken a penny from the stash - and the stash and the business income have both
continued to grow nicely.

This brings out the "ohhh... then you're not really retired crowd." I average an hour a week managing this business activity...I feel much more retired than I do a slave to earning income.

This was definitely the part of the MMM brand that inspired me. When I started following him 7ish years ago, we had a big enough stash to pull off a 3-4% SWR. We had been frugal for a lifetime before I knew anything about this blog. And I didn't have enough confidence to pull it off.

After realizing that the income from 2 rentals and our other mostly passive (and recently started) side hustles could indefinitely fund our lifestyle, we confidently pulled the plug. And inflation is such a minor concern that I mostly dismiss it because I haven't really experienced it yet.