Inflation 2021/2022 and your retirement plans

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3504PIR
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Inflation 2021/2022 and your retirement plans

Post by 3504PIR »

Infatuation has largely been absent, for good reason, from the various retirement discussion here on bogleheads over the past decade or more. It often comes up as a topic, rightly so, with regard to the value of a dollar earned vs a dollar needed in the future.

We have not had honest to shake our souls inflation until recently, and the projections are, as expected, all over the place due to the unreliable CPI to the other indexes which do or don’t honestly represent the true cost of goods in relation to our daily lives.

I rely on the CPI based calculations to match, to some extent, the day to day cost of living we experience. I retired on a series of government pensions linked to the current metric which links payment to an index, along the lines of social security. That is my disclaimer. To add context, I retired without debt, and prior to social security, so I have the means, for the time being, to withstand some erosion of income, vs actual income for a while. Perhaps indefinitely, depending on if we turn into Weimar Germany circa 1936 anytime soon.

I have several ideas for our own situation. For one thing, I fully intend to keep my hunting and fishing licenses up to date to harvest as much as I can from my local area. Additionally we retired to a farm and we garden and raise various livestock to supplement ourselves. We have chickens for eggs we sell and eat and are bringing in turkeys again this spring along with some hogs for slaughter. While we are hobby farmers overall, we have gained a lot of knowledge from raising everything from chickens as mentioned to cattle. I also fly fish and as a rule release, but have rivers in our area where we can keep fish if needed. I recall from my teens that a variety of options were the key to my parents making ends meet. For example, they bought and slaughtered cattle in the 70s regularly to keep our food bill down.

With that long preface, along with my own measure on inflation as it relates to my situation, what are your thoughts on the current state of inflation in the US and do you have any concerns based on your situation, such as your portfolio status, exposure to inflation based on locality, dependence on social security or bonds? I am curious what thoughts are percolating out there on the topic of inflation. Finally I realize older bogleheads like myself have lived through a high inflation environment, and I remember some sad days with some very basic meals and other significant cutbacks to our family budget. I equally realize that a large portion of our community has had no experience with the topic at hand and will be most welcome to give their opinions. While we older members may have lived through it, younger members may have insights we never imagined.

Finally, and I am keenly interested in this question, are you comfortable sustaining you and your family from where you currently live? As in, do you live on a small or large peice of land like I do, or do you live in a subdivision and perhaps are doing something out of the box which you can share.

I am curious about all of your impressions.

tldr: are you comfortable with how your situation will survive inflation and how are you applying any hacks you might know of to overcome inflation?
Last edited by 3504PIR on Thu Nov 11, 2021 11:37 am, edited 1 time in total.
Shallowpockets
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Re: Inflation 2021-2024 and your retirement plans

Post by Shallowpockets »

It is of no account to me. I will not be slaughtering hogs in the backyard. Nor fly fishing for a meal. LBYM has been my life, but only since having means, which was not until I was 41. Since then I and DW, both retired 6 years ago, have attained at present 60X annual expenses. There is a lot to cut in those expenses before I take down any hogs.
The reality of inflation is that it is an exercise in math for BHs while even before the present numbers and concerns a vast portion of our population lives month to month. Paycheck to paycheck. They have been this way for long time. Life is an inflation for them.
I lived such a way through the 70s periods of inflation. No internet then. So did not even know that such was going on in any statistical way. When you are scratching a living already, it matters not. It is just another day, another crisis. There is no LBYM. It is not possible.
But, for BHs it is, and should still be a watch phrase. A lifestyle.
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Re: Inflation 2021-2024 and your retirement plans

Post by jebmke »

Shallowpockets wrote: Thu Nov 11, 2021 12:48 am There is a lot to cut in those expenses before I take down any hogs.
Apparently you only have to hold out for three years for some reason. :wink:
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boogiehead
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Re: Inflation 2021-2024 and your retirement plans

Post by boogiehead »

As someone who decided to semi-FIRE as a result of the pandemic I've been switching to a lot of DIY to save money as a lot of the services that I used to get have inflated anywhere from 20-50%. Things I've cut back on and haven't really lost any "quality of life" per se.... I cut my own hair (may not be perfect, but gets the job done :D), cancelled house cleaning service (clean my own place now which helps keep me active), I no longer do full service car wash instead I go to an automated place that provides free vacuum and extra drying area afterwards, I cut back on eating out (a combination of cooking more and take-out).
Ron Ronnerson
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Re: Inflation 2021-2024 and your retirement plans

Post by Ron Ronnerson »

I’ve got some (perhaps counter-intuitive) moves I'm making that I’ll share. For starters, I’m loading up on debt these days. Earlier this year, I refinanced my home and took cash out of it. After almost 12 years of making payments on my house, I owe more on it today than I did when I purchased it. I’m on track to pay it off in 41 years from the time I bought the home. I have a 30-year mortgage locked in at 2.375%.

Due to California’s Prop 13, my property taxes only increase by up to 2% per year and are based on the purchase price of the home (bought in 2010). My property taxes have risen about 10% over the past 12 years while the home has appreciated in value by something like 230%. The mortgage payments and property taxes make up about half of my expenses and they’re basically immune to inflation.

I’m saving roughly half my income and putting a big portion of what I do spend toward housing - a spending category that stays fixed. The remaining expenses aren’t as big a percentage of our gross income as they are for a lot of people. For instance, our health insurance is subsidized, we don’t pay anything for child care (my wife is a stay-at-home parent), our income taxes are close to zero, we travel using credit card points, have term life insurance that stays at a fixed price, spend almost nothing on clothes, don’t pay much for heating and cooling due to living in a townhouse (2150 sq ft) sandwiched between neighbors in a moderate climate (Bay Area), and are generally pretty frugal. Yet we direct much of our spending toward a mortgage that is 4.5 times income and which we have refinanced 3 times, starting the 30-year clock each time. I’m fine with never paying off the home at the current rate. Some would say we're house poor. But we're also inflation-insulated.

Inflation seems to target different categories to varying extents. Energy and cars are being hit hard at the moment. So my plan is to continue to drive my little Corolla for a long time to come (unless some electric car rebates make me reconsider that idea by offering a nice discount).

The money we’ve taken out so far from the house has been used to churn a bunch of bank accounts for bonuses, fully fund our retirement accounts, invest in a taxable brokerage account, and purchase I bonds. Some of the money has been spread out over a number of bank accounts that pay a higher after-tax rate than our mortgage rate on balances up to a certain dollar amount. I’m looking for opportunities in these inflationary times and carrying debt seems to make sense to me right now.

My wife and I will soon be opening up credit cards that have a 0% introductory rate for 15 months or longer and make minimum payments until the time for the promotional rate is up. We’ll earn bonuses for opening the accounts as well but the main goal is to leverage inflation and pay back our current spending in the future.

In case you can't tell, I'm a fan of low-interest debt, particularly when inflation is running high. Anyhow, I think our approach is not for everyone but maybe it’ll provide food for thought.

My retirement should be fully covered by a pension with COLA ($100k/year in current dollars) and we should also get some social security. Investment income on top should hopefully make retirement pretty comfortable.
Topic Author
3504PIR
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Re: Inflation 2021-2024 and your retirement plans

Post by 3504PIR »

jebmke wrote: Thu Nov 11, 2021 1:26 am
Shallowpockets wrote: Thu Nov 11, 2021 12:48 am There is a lot to cut in those expenses before I take down any hogs.
Apparently you only have to hold out for three years for some reason. :wink:
Sorry about that, I fixed it to what I originally intended.
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Re: Inflation 2021-2024 and your retirement plans

Post by TN_Boy »

3504PIR wrote: Thu Nov 11, 2021 12:21 am
stuff deleted ...

I am curious about all of your impressions.

tldr: are you comfortable with how your situation will survive inflation and how are you applying any hacks you might know of to overcome inflation?
My first impression is that after years of low inflation, we've had one -- 1 -- year of high inflation. Though I do agree that the high inflation is unlikely to end this year. We clearly have ongoing supply chain issues due partly to labor shortages in key areas which are unlikely to be fixed soon. Which feels pretty inflationary.

Someone not retired could be severely affected even by the one year burst we've had, especially if you need to buy a car, are seeing rent go up, etc. If they are not seeing matching wage increases, they are absolutely worse off.

Okay, but how about a BH retiree living off SS and investments?

So far, inflation should be a complete non-event to this person.

We can wrangle about whether the SS increase will exactly match a person's increase in living costs. But obviously there will be a notable adjustment that will partially or totally cover inflation for many people taking SS.

Now let's look at investments. And smile. :beer

The real return of a portfolio with any decent percent of money in equities has been splendid the last few years. You should be looking at a fairly sizeable real dollar increase in your 401k, your brokerage account, etc. Even if you've been pulling the old 4% rule money from it.

An ultra-conservative investor might be taking a hit ... .that is why an ultra-conservative retirement portfolio (which I'll call less than 20%, though I personally would probably never go below 30%) is usually a bad idea and more risky than a better diversified portfolio. Don't do that ... this year is one reason why.

If inflation continues to run at a rate much higher than the yield on fixed income, it will start to hurt even investors with a decent portfolio. But that hasn't happened yet. And the economy is still relatively strong, which tends to support stock prices.

So ... I'm completely utterly comfortable so far.

I do not spend any serious time worrying about true hyper-inflation (50% a month or more). That would imply the US economy has blown up. A substantial percent of my equities is foreign, to slightly protect against a US economy or stock market meltdown if the rest of world does a bit better.

Anyway. We have investments. Real return matters. Real returns have been great in recent years. Which should buffer us against even a multi-year run of higher inflation.

Surely well prepared retirees or soon-to-be retirees have already considered the possibility of real returns being zero or lower for some number of years? That can happen due to high inflation or a market crash ... Do I enjoy seeing high inflation numbers? No. Nor do I enjoy seeing market crashes. But people should be ready for periods where their real return is below zero.
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Re: Inflation 2021/2022 and your retirement plans

Post by TN_Boy »

skime wrote: Thu Nov 11, 2021 11:47 am stuff deleted

Inflation? What inflation? Surely the fed and president would tell us if there was inflation.
Well they have. From a Nov 10 WSJ article:
“We see higher inflation persisting, and we have to be in a position to address that risk should it create a threat of more persistent, longer-term inflation,” Fed Chairman Jerome Powell said at a news conference last week.
or from the same article
Now, Mr. Powell said, central bank forecasters expect higher inflation to persist “well into next year.”
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JoeRetire
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Re: Inflation 2021/2022 and your retirement plans

Post by JoeRetire »

3504PIR wrote: Thu Nov 11, 2021 12:21 amwhat are your thoughts on the current state of inflation in the US and do you have any concerns based on your situation, such as your portfolio status, exposure to inflation based on locality, dependence on social security or bonds?
No concerns and no plans to go the Grizzly Adams route.
Finally I realize older bogleheads like myself have lived through a high inflation environment, and I remember some sad days with some very basic meals and other significant cutbacks to our family budget.
I lived through the high-inflation 70s and 80s. No inflation-connected sad days or cutbacks in my family. It was interesting to watch, with a mortgage in the high teens, leaving a job because a 25% raise wasn't enough, etc. But overall we experienced no negative financial outcome due to inflation at all.
Finally, and I am keenly interested in this question, are you comfortable sustaining you and your family from where you currently live? As in, do you live on a small or large peice of land like I do, or do you live in a subdivision and perhaps are doing something out of the box which you can share.
Can easily sustain my family where we live, without resort to a piece of land, cattle, food from the land, etc.
how are you applying any hacks you might know of to overcome inflation?
Not using any hacks, other than staying the course. Our portfolio remains invested to the degree we are comfortable. We have not paid off our fixed-rate mortgage. We are delaying our social security benefits in order to maximize that inflation-protected, guaranteed, income stream.

Despite the increase in the chatter, it's not a time for inflationary panic, IMHO.
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Re: Inflation 2021/2022 and your retirement plans

Post by Carson »

3504PIR wrote: Thu Nov 11, 2021 12:21 am Infatuation has largely been absent, for good reason, from the various retirement discussion here on bogleheads over the past decade or more
Infatuation may cause to a complication of your retirement plans if it leads to an eventual divorce from your spouse and required alimony payments. :wink:

I have inflation planned at 3% and our investments planned to gain 3% each year, so I am hopeful that was a conservative enough choice. Like most of my life though, I'm hoping that managing controllable costs as effectively as possible helps us to remain agile and flexible to some extent.
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Re: Inflation 2021/2022 and your retirement plans

Post by jharkin »

Well I can tell you, if we turn into Germany in 1936 we have much bigger problems to worry about - that was the Third Reich, not the Weimar Republic....

Having said that. Im not really that spooked yet. If you rub Simba's back testing sheet on the late 70s... yea inflation was bad but money market and bonds where yielding double digits. Today I have a huge hedge against inflation in the form of a 2.75% 30 year mortgage and can roll a lot of EF into IBonds. The biggest things that inflation hits for most people are food, heating fuel and transportation and those are relatively small % of my budget to start with so it would take many years of high inflation without compensating income/stock market growth for that to become a problem.
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Re: Inflation 2021/2022 and your retirement plans

Post by HomerJ »

I'm having an old-age moment.

How does having a low-interest mortgage loan hedge you against inflation?

You pull money out, but you have to invest it somewhere, and it has to beat inflation (AND the interest rate on the loan) for you to make money that way.

Is the idea that the value of your house will go up with inflation? While the loan remains constant?

But then the only way to to access that money is to sell your house, right? And any other house you'd buy as a replacement also has gone up in price due to inflation.... So downsize?

If the value of the house is the inflation hedge, then wouldn't it work just as well if it is paid off?
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Re: Inflation 2021/2022 and your retirement plans

Post by willthrill81 »

3504PIR wrote: Thu Nov 11, 2021 12:21 am Infatuation has largely been absent, for good reason, from the various retirement discussion here on bogleheads over the past decade or more.
Infatuation?
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Re: Inflation 2021/2022 and your retirement plans

Post by mnnice »

Carson wrote: Thu Nov 11, 2021 1:34 pm
3504PIR wrote: Thu Nov 11, 2021 12:21 am Infatuation has largely been absent, for good reason, from the various retirement discussion here on bogleheads over the past decade or more
Infatuation may cause to a complication of your retirement plans if it leads to an eventual divorce from your spouse and required alimony payments. :wink:

I have inflation planned at 3% and our investments planned to gain 3% each year, so I am hopeful that was a conservative enough choice. Like most of my life though, I'm hoping that managing controllable costs as effectively as possible helps us to remain agile and flexible to some extent.
But high inflation might negate the effects of alimony $X for 5 years with no adjustment for inflation.

We have spent more in 2021 than 2020. Not sure that much of that is inflation related. 2020 had no big planned or unplanned expenditures. Because of the pandemic we had only a couple of local camping outings plus taking our camper to my in laws for a bit of a fall break/help with harvest trip.

This year we got new tires on everything with wheels, new kitchen appliances, and went on three actual vacations plus the same number of camping outings. Probably 20% more spending, but most/all? of the increase can be attributed to the things listed above.
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Re: Inflation 2021/2022 and your retirement plans

Post by Charon »

My response to inflation was to shift my EF from CDs to I-bonds. That's it. I still see no signs that this will be a serious, long-term problem. Yes, the supply chain issues are real, but a little inflation is hardly the worst thing to come out of this pandemic.

But I'm in the accumulation phase. I understand that those who are retired might be more worried... except the stock market has been doing great. All that backtesting you did of your portfolios before you retired? It included periods much worse than anything we're experiencing now. So retirees should be sleeping fine too. Bogleheads are fine, whether they retired with 30X or they're accumulating and saving 50% of their income, seriously, they're fine. The people who are being pinched are poor people getting hit by food, rent, and energy increases.

Our political ruling class has been gripped with fear over 70s stagflation for a long time, and the Fed treated the 2% target as a ceiling rather than a target for quite a while. I have no concerns about the Fed underreacting to inflation.

And none of this, including the 70s, is about hyperinflation. If there's a catastrophe that causes Americans to have to live off the land, it's not going to be hyperinflation. Stop worrying about that.
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Re: Inflation 2021/2022 and your retirement plans

Post by stan1 »

My retirement plans have never assumed low inflation, high yields, or high market appreciation. Nor have I assumed what happened in the past would happen again (Great Depression, WW II, 70s stagflation, .com bubble, Great Recession, COVID). History does not repeat itself, but there's always a new challenge to deal with. Rather there will always be circumstances and events I have no control over, so I try my best to mitigate unknown risks by working longer, spending less, saving more.

As a Gen X-er myself I think I am going to be envious of well off Greatest/Silent Generation retirees for the rest of my life (such as my well off parents, aunts, and uncles with their inflation adjusted pensions and paid in full LTCI policies from the 1990s). Nothing I can control about that, though.
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Re: Inflation 2021/2022 and your retirement plans

Post by Zeno »

stan1 wrote: Thu Nov 11, 2021 2:28 pm My retirement plans have never assumed low inflation, high yields, or high market appreciation. Nor have I assumed what happened in the past would happen again (Great Depression, WW II, 70s stagflation, .com bubble, Great Recession, COVID). History does not repeat itself, but there's always a new challenge to deal with. Rather there will always be circumstances and events I have no control over, so I try my best to mitigate unknown risks by working longer, spending less, saving more.

As a Gen X-er myself I think I am going to be envious of well off Greatest/Silent Generation retirees for the rest of my life (such as my well off parents, aunts, and uncles with their inflation adjusted pensions and paid in full LTCI policies from the 1990s). Nothing I can control about that, though.
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Re: Inflation 2021/2022 and your retirement plans

Post by tibbitts »

When the pandemic hit three months into my retirement, it killed off everything I'd planned to do, so inflation is merely icing on the cake. I'd had a pretty good life to that point: for the most part, whatever problems existed didn't directly affect me. So I have some nice memories, but no positive thoughts about the future. I'm assuming life will be just one problem after another now; that's just a function of growing older, combined with the expected reversion to the mean after being fortunate for so many years.
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Re: Inflation 2021/2022 and your retirement plans

Post by flyingaway »

Supply chain issues are just an excuse, there is just too much money in people's hands, and more money is coming soon.

Too bad I am retried and can no longer chase the new money. Maybe I could try fishing and hog slaughtering.
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Re: Inflation 2021/2022 and your retirement plans

Post by JoeRetire »

HomerJ wrote: Thu Nov 11, 2021 1:57 pm How does having a low-interest mortgage loan hedge you against inflation?

You pull money out, but you have to invest it somewhere, and it has to beat inflation (AND the interest rate on the loan) for you to make money that way.
Having a low fixed-rate mortgage means you don't have to pull the money out - it was never "in" to begin with.
If the value of the house is the inflation hedge, then wouldn't it work just as well if it is paid off?
A paid off mortgage is terrific, if someone else paid it off for you. Otherwise, you took your money from somewhere and put it into the walls of your home, rather than having it in a portfolio that could beat inflation.
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Re: Inflation 2021/2022 and your retirement plans

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Charon wrote: Thu Nov 11, 2021 2:25 pm Our political ruling class has been gripped with fear over 70s stagflation for a long time
Huh?
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Re: Inflation 2021/2022 and your retirement plans

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flyingaway wrote: Thu Nov 11, 2021 2:59 pm Supply chain issues are just an excuse, there is just too much money in people's hands, and more money is coming soon.
I think that you're at least partly correct. The velocity of money has increased slightly since Q2 of 2020. Just a steady velocity of money combined with a big increase in the money supply (more than doubled over the last decade) is a literal recipe for inflation. The only reason we haven't seen inflation until recently is because the velocity of money steadily fell over the last decade. But now that it's stabilized, inflation has reared its head.
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Re: Inflation 2021/2022 and your retirement plans

Post by Nowizard »

Definitely, no concerns. Inflation is often accompanied by returns continuing to exceed it, and stay-the-course is the best approach for us.

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Re: Inflation 2021/2022 and your retirement plans

Post by HomerJ »

JoeRetire wrote: Thu Nov 11, 2021 3:06 pm
HomerJ wrote: Thu Nov 11, 2021 1:57 pm How does having a low-interest mortgage loan hedge you against inflation?

You pull money out, but you have to invest it somewhere, and it has to beat inflation (AND the interest rate on the loan) for you to make money that way.
Having a low fixed-rate mortgage means you don't have to pull the money out - it was never "in" to begin with.
Someone else said they took money out.
A paid off mortgage is terrific, if someone else paid it off for you. Otherwise, you took your money from somewhere and put it into the walls of your home, rather than having it in a portfolio that could beat inflation.
That doesn't explain anything, sorry. Another poster said that a house with a mortgage was an inflation hedge. I was curious what difference the mortgage makes. Isn't the house itself (paid off or not), an inflation hedge?

You are saying the opposite. You are saying that a house is not an inflation hedge, but the correct inflation hedge is to invest in a portfolio than can beat inflation.
Last edited by HomerJ on Thu Nov 11, 2021 3:27 pm, edited 1 time in total.
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Re: Inflation 2021/2022 and your retirement plans

Post by vitaflo »

JoeRetire wrote: Thu Nov 11, 2021 3:06 pm
HomerJ wrote: Thu Nov 11, 2021 1:57 pm If the value of the house is the inflation hedge, then wouldn't it work just as well if it is paid off?
A paid off mortgage is terrific, if someone else paid it off for you. Otherwise, you took your money from somewhere and put it into the walls of your home, rather than having it in a portfolio that could beat inflation.
If it's in a portfolio that could beat inflation then it's in a riskier asset than your home (stocks). Those aren't really equivalent investments. Less risky assets (bonds) likely won't beat inflation, and as such I'd rather pay off the house for a guaranteed return plus inflation protection than put it into bonds.
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Re: Inflation 2021/2022 and your retirement plans

Post by stan1 »

JoeRetire wrote: Thu Nov 11, 2021 3:10 pm
Charon wrote: Thu Nov 11, 2021 2:25 pm Our political ruling class has been gripped with fear over 70s stagflation for a long time
Huh?
Without the political part there's definitely a generation of economists who did their dissertations in the 80s and 90s on 70s stagflation who are still around. It will be a few more decades before the ones who did their dissertations on Great Recession and quantitative easing populate most of the Fed.
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Re: Inflation 2021/2022 and your retirement plans

Post by dbr »

No concern. The original planning assumed some possible ranges of inflation and returns. In reality inflation has been less and returns have been greater than could have happened, so it is a non-issue. We have already made up for future damage that may or may not occur. Anyway both part of the sources of income and part of the investments are indexed for inflation.

People in other circumstances may be more challenged. Inflation is always to be taken seriously. We were working, starting a family, etc. through the worst years of the 70's and 80' oil shocks and all. Our parents retired into that but then got to enjoy the great stock bull market of 1980-2000. I remember living on the downside of that with ten year 10% CD's.
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Re: Inflation 2021/2022 and your retirement plans

Post by delamer »

In terms of food, my family has zero ability to sustain itself. But food price inflation doesn’t worry me. There are myriad ways that we adjust our purchases to feed ourselves on the same food budget, if needed due to high inflation in what we currently buy.

The supply chain issue (which obviously is one factor contributing to inflation) and scarcity are much more concerning.

In terms of energy, we have solar panels that completely supply our electricity needs.

So as retirees, the only major expense items that would be of concern — in terms of high inflation — would be natural gas (for heat) and medical care.

Vehicles and their fuel, clothing, and recreation are all small parts of our budget, so inflation in those areas just doesn’t matter.
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Re: Inflation 2021/2022 and your retirement plans

Post by JoeRetire »

HomerJ wrote: Thu Nov 11, 2021 3:24 pmYou are saying that a house is not an inflation hedge, but the correct inflation hedge is to invest in a portfolio than can beat inflation.
That's exactly what I'm saying.
Having not paid off the mortgage means you have the payoff amount invested in a portfolio that can beat inflation.
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Re: Inflation 2021/2022 and your retirement plans

Post by HomerJ »

Food is like 8.6% of the average American's budget. 5% at home, 3.6% at restaurants.

I don't think many of us will need to slaughter our own hogs anytime soon.
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Re: Inflation 2021/2022 and your retirement plans

Post by JoeRetire »

vitaflo wrote: Thu Nov 11, 2021 3:27 pm
JoeRetire wrote: Thu Nov 11, 2021 3:06 pm
HomerJ wrote: Thu Nov 11, 2021 1:57 pm If the value of the house is the inflation hedge, then wouldn't it work just as well if it is paid off?
A paid off mortgage is terrific, if someone else paid it off for you. Otherwise, you took your money from somewhere and put it into the walls of your home, rather than having it in a portfolio that could beat inflation.
If it's in a portfolio that could beat inflation then it's in a riskier asset than your home (stocks). Those aren't really equivalent investments.
Sure. But not really the point.
Either you are interested in beating inflation, or not.
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JoeRetire
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Re: Inflation 2021/2022 and your retirement plans

Post by JoeRetire »

stan1 wrote: Thu Nov 11, 2021 3:27 pm
JoeRetire wrote: Thu Nov 11, 2021 3:10 pm
Charon wrote: Thu Nov 11, 2021 2:25 pm Our political ruling class has been gripped with fear over 70s stagflation for a long time
Huh?
Without the political part there's definitely a generation of economists who did their dissertations in the 80s and 90s on 70s stagflation who are still around. It will be a few more decades before the ones who did their dissertations on Great Recession and quantitative easing populate most of the Fed.
Are these economists the "ruling class"?
Are they all gripped in fear, or just some?
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HomerJ
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Re: Inflation 2021/2022 and your retirement plans

Post by HomerJ »

JoeRetire wrote: Thu Nov 11, 2021 3:39 pm
HomerJ wrote: Thu Nov 11, 2021 3:24 pmYou are saying that a house is not an inflation hedge, but the correct inflation hedge is to invest in a portfolio than can beat inflation.
That's exactly what I'm saying.
Having not paid off the mortgage means you have the payoff amount invested in a portfolio that can beat inflation.
Ah, so you are saying the people who think a house is an inflation hedge are wrong. Money should not be invested in a house, but in a portfolio that can beat inflation.

Which portfolio can beat inflation?
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dbr
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Re: Inflation 2021/2022 and your retirement plans

Post by dbr »

Isn't the conventional understanding that fixed debtors (owning a mortgage) benefit from inflation just as fixed creditors (bond owners) are punished by inflation. Owners of annuities are bond owners by proxy and recipients of fixed pensions and annuities are punished by inflation.

Whether or not equities truly outrun inflation by the same amount at all times is a dicey proposition.

Owning a home means ones shelter does not become more expensive to acquire, but taxes, insurance, and maintenance can certainly go up.
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Re: Inflation 2021/2022 and your retirement plans

Post by Sandtrap »

It’s seems “infatuations” are far and few in retirement as a senior and being married for 40+ years….
However…..

Our retirement plans continue on course.
Why?
A well strategized “bogle” portfolio and comprehensive long term financial strategy and IPS mostly ensures that the investor ignores the transitory nature of the economy and sleeps well, or has larger priorities such as:
1 those “infatuations” you brought up…
2 the upcoming appt with a Cardiologist…
3 trying to find a rubber tip for a cane or walker that doesn’t cut through.
4 et al

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Re: Inflation 2021/2022 and your retirement plans

Post by HomerJ »

dbr wrote: Thu Nov 11, 2021 3:47 pm Isn't the conventional understanding that fixed debtors (owning a mortgage) benefit from inflation
Only if wages go up to match inflation.

If you are retired, then I don't see how having a mortgage helps too much, unless you can guarantee a portfolio return that beats inflation (AND the interest rate of the mortgage).

I guess one's SS payments are like a wage, so they would go up with inflation, while mortgage payments remain constant.
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Re: Inflation 2021/2022 and your retirement plans

Post by Broken Man 1999 »

I don't see much change at all in our retirement.

Certainly we have already seen increases in fuel and food. But, we drive very little, and there are just the two of us consuming food.

Medical insurance premiums for us remained at $0 thru the end of 2022, just received the info from MegaCorp. No change on co-pays, medical and pharmacy deductibles still $0. Part B likely goes up a few dollars, but not that much according to estimates I have read.

We have no mortgage, everything except roof has been replaced/remodeled/refreshed recently. Appliances, heat pumps, water heater, all very young. Inside recently painted, exterior brick with aluminum soffits, very low maintenance. New fence installed.

2008 vehicle, 103,000 miles. E150 van, rugged and reliable. No expectation of needing to replace.

We are in excellent financial shape to weather inflation, certainly better shape than the average bear, I believe.

For now I'm taking the Alfred E Neuman mindset, "What, me worry?"

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Re: Inflation 2021/2022 and your retirement plans

Post by AnnetteLouisan »

For those of us shaped by the trauma of the 70s, we’ve been living below our means so long that the latest horror isn’t going to change old habits or our budget that much. We’d been waiting for the other shoe to drop (amazed by the low inflation) all through the 90s, 2000s and 2010s.

Separately I noted with concern recently a map showing inflation highest in the heartland, where incomes are lower on average. Guess it makes sense but it’s also sad that it’s always the most vulnerable who suffer most.
Last edited by AnnetteLouisan on Thu Nov 11, 2021 5:11 pm, edited 1 time in total.
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Re: Inflation 2021/2022 and your retirement plans

Post by LittleMaggieMae »

It's weird.

Few people complained about the shrinkflation that started happening a few years ago and effected more and more products - especially at the grocery store - you know when the price of the product stays the same - but there was LESS in the package.

I've noticed the higher prices at the grocery store and fewer sales but I've also noticed less "shrinking" of product being purchased. I have even noticed that a few products have returned to the "larger size" but of course with a higher price. I haven't checked the cost per unit yet. I don't buy much "processed" foods - and that's where the cost per unit and size of a serving really matter. The manufacturer can twist around the unit size and serving size to make the price seem better.
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Re: Inflation 2021/2022 and your retirement plans

Post by jharkin »

HomerJ wrote: Thu Nov 11, 2021 1:57 pm I'm having an old-age moment.

How does having a low-interest mortgage loan hedge you against inflation?
1. My housing payment is fixed and not subject to annual increases like rent
2. I pay back borrowed money with devalued future dollars. At 6% inflation, a 2.75% mortgage is actually paying me 3.25%
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Re: Inflation 2021/2022 and your retirement plans

Post by HomerJ »

jharkin wrote: Thu Nov 11, 2021 4:50 pm
HomerJ wrote: Thu Nov 11, 2021 1:57 pm I'm having an old-age moment.

How does having a low-interest mortgage loan hedge you against inflation?
1. My housing payment is fixed and not subject to annual increases like rent
2. I pay back borrowed money with devalued future dollars. At 6% inflation, a 2.75% mortgage is actually paying me 3.25%
But only if your wages (or portfolio) goes up 6% to match inflation.

Things costing more doesn't help you automatically.
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Re: Inflation 2021/2022 and your retirement plans

Post by Wanderingwheelz »

HomerJ wrote: Thu Nov 11, 2021 5:09 pm
jharkin wrote: Thu Nov 11, 2021 4:50 pm
HomerJ wrote: Thu Nov 11, 2021 1:57 pm I'm having an old-age moment.

How does having a low-interest mortgage loan hedge you against inflation?
1. My housing payment is fixed and not subject to annual increases like rent
2. I pay back borrowed money with devalued future dollars. At 6% inflation, a 2.75% mortgage is actually paying me 3.25%
But only if your wages (or portfolio) goes up 6% to match inflation.

Things costing more doesn't help you automatically.
Most of the people who are playing the mortgage game are assuming stocks will keep going up and up. They may not, in which case the paid off house was probably the better way to go since risk at that point is like a brick in the face- what was expected to happen, didn’t. The gamble wasn’t probably worth the much steeper loss in net worth and perhaps SWAT isn’t as easy as it might have been otherwise. Not the sort of retirement I’m looking for, but it takes all kinds.

I guess a person could also try to find a basket of high yielding stocks and hope they hold up well in a severe down turn (Some actually might). Oh, and the dividends aren’t cut too. Back during the internet fiasco of 2000 I had my entire IRA in Phillip Morris, which I’d never do now, which turned out to be prudent.
Last edited by Wanderingwheelz on Thu Nov 11, 2021 5:45 pm, edited 1 time in total.
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Re: Inflation 2021/2022 and your retirement plans

Post by JDave »

I've been investing for over forty years, and every single year I've read that hyperinflation is just around the corner.
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Re: Inflation 2021/2022 and your retirement plans

Post by TN_Boy »

willthrill81 wrote: Thu Nov 11, 2021 3:10 pm
flyingaway wrote: Thu Nov 11, 2021 2:59 pm Supply chain issues are just an excuse, there is just too much money in people's hands, and more money is coming soon.
I think that you're at least partly correct. The velocity of money has increased slightly since Q2 of 2020. Just a steady velocity of money combined with a big increase in the money supply (more than doubled over the last decade) is a literal recipe for inflation. The only reason we haven't seen inflation until recently is because the velocity of money steadily fell over the last decade. But now that it's stabilized, inflation has reared its head.
I don't know, based on what I read and my perhaps feeble knowledge of how the world economy works, I think the supply chain issues are a really big deal.

For example, can't remember if it was WSJ or NY Times, but there was an article this week describing what is a major shortage of truck drivers. Driving a big rig takes training, and they are having trouble getting people who accept the trucker lifestyle. If you don't have enough truckers, well, a lot of stuff in the US moves by truck. Or doesn't move, in which case stuff piles up in ports because there is no truck to take the goods which came off the container ships.

Built a house lately? Talk to the contractor about how much fun they are having getting materials ... and how much wood costs.

Shortage of X -- regardless of reason -- is going to drive up cost of X.

And the supply chain issues seem to correlate pretty closely with the inflation spike.
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Re: Inflation 2021/2022 and your retirement plans

Post by TN_Boy »

LittleMaggieMae wrote: Thu Nov 11, 2021 4:26 pm It's weird.

Few people complained about the shrinkflation that started happening a few years ago and effected more and more products - especially at the grocery store - you know when the price of the product stays the same - but there was LESS in the package.

I've noticed the higher prices at the grocery store and fewer sales but I've also noticed less "shrinking" of product being purchased. I have even noticed that a few products have returned to the "larger size" but of course with a higher price. I haven't checked the cost per unit yet. I don't buy much "processed" foods - and that's where the cost per unit and size of a serving really matter. The manufacturer can twist around the unit size and serving size to make the price seem better.
Shrinkflation is definitely sneakier than keeping the package size the same and simply raising the price.

But standard inflation metrics do attempt to account for it. If your container of ice cream is smaller but costs the same, it should be reflected in the official inflation numbers. I do tend to check the unit price.

Maybe it's just me, but I've never felt food inflation to be very high. In fact, I go into a grocery store and I'm amazed at how much food you can get for your dollar, if you stick to store brands, etc. I often don't do that .... but food doesn't seem that expensive to me. If I was living on the financial edge, sure, but in that situation every penny counts.
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Re: Inflation 2021/2022 and your retirement plans

Post by TheBeanCounter »

It will not be like the inflation in the 70's, where Volcker was able to raise rates and eventually get it under control. Raising rates to their historical average would raise government debt service to over 30% of the annual budget. This is going to be a whole different beast.
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Re: Inflation 2021/2022 and your retirement plans

Post by JoeRetire »

HomerJ wrote: Thu Nov 11, 2021 3:42 pm
JoeRetire wrote: Thu Nov 11, 2021 3:39 pm
HomerJ wrote: Thu Nov 11, 2021 3:24 pmYou are saying that a house is not an inflation hedge, but the correct inflation hedge is to invest in a portfolio than can beat inflation.
That's exactly what I'm saying.
Having not paid off the mortgage means you have the payoff amount invested in a portfolio that can beat inflation.
Ah, so you are saying the people who think a house is an inflation hedge are wrong. Money should not be invested in a house, but in a portfolio that can beat inflation.
A house is a house.
A low-rate fixed mortgage with enough cash to pay it off can beat inflation.
A paid off house with no cash cannot.
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Re: Inflation 2021/2022 and your retirement plans

Post by RubyTuesday »

HomerJ wrote: Thu Nov 11, 2021 5:09 pm
jharkin wrote: Thu Nov 11, 2021 4:50 pm
HomerJ wrote: Thu Nov 11, 2021 1:57 pm I'm having an old-age moment.

How does having a low-interest mortgage loan hedge you against inflation?
1. My housing payment is fixed and not subject to annual increases like rent
2. I pay back borrowed money with devalued future dollars. At 6% inflation, a 2.75% mortgage is actually paying me 3.25%
But only if your wages (or portfolio) goes up 6% to match inflation.

Things costing more doesn't help you automatically.
Low interest fixed rate debt, while not directly a hedge against inflation, can be “good” to have during inflation for many reasons…
- allows you to hold other inflation-hedged or inflation-beating assets
- allows you to fund future consumption (which would be inflated in future) now at fixed rate costs
- if your income grows with inflation (or faster than your fixed debt rate) you can payback nominal debt with inflated income
- if you own your home, your imputed rent income grows with inflation while your debt is nominal

Kitces has decent post on this
https://www.kitces.com/blog/why-a-mortg ... -that-are/
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Re: Inflation 2021/2022 and your retirement plans

Post by Ron Ronnerson »

Wanderingwheelz wrote: Thu Nov 11, 2021 5:27 pm
HomerJ wrote: Thu Nov 11, 2021 5:09 pm
jharkin wrote: Thu Nov 11, 2021 4:50 pm
HomerJ wrote: Thu Nov 11, 2021 1:57 pm I'm having an old-age moment.

How does having a low-interest mortgage loan hedge you against inflation?
1. My housing payment is fixed and not subject to annual increases like rent
2. I pay back borrowed money with devalued future dollars. At 6% inflation, a 2.75% mortgage is actually paying me 3.25%
But only if your wages (or portfolio) goes up 6% to match inflation.

Things costing more doesn't help you automatically.
Most of the people who are playing the mortgage game are assuming stocks will keep going up and up. They may not, in which case the paid off house was probably the better way to go since risk at that point is like a brick in the face- what was expected to happen, didn’t. The gamble wasn’t probably worth the much steeper loss in net worth and perhaps SWAT isn’t as easy as it might have been otherwise. Not the sort of retirement I’m looking for, but it takes all kinds.
I think your point is apt: It does take all kinds. jharkin posted their financial numbers in a thread not that long ago and said they expect more than 100% of their retirement to be fully covered by pension and social security. Their expenses are around 1/3 their income and they are saving a considerable amount. I find myself in a similar situation (expecting a $100k pension with COLA plus social security with five-figure expenses) and currently saving about half my income. I happen to share jharkin's perspective and took cash out of my house earlier this year and invested a portion of it. Some of the money went toward churning bank accounts for bonuses and a chunk went into I Bonds currently paying an after-tax rate (12% federal bracket and 0% California) above my mortgage rate of 2.375% (30 year loan).

It is risky and it's not that I am banking on the portfolio going up and up but I am placing a bet that over a long time frame like 30 years, I will likely win the bet. I can afford to lose, though. Not everyone may find themselves in the same situation. I think it's worth noting thought that this is not an even coin flip but more like rolling loaded dice. Over 30 year periods, what percent of the time has the stock market returned better than the mortgage rates in question? I do understand that the return is not a guarantee but these loaded dice are a little too tempting to pass up, you see.
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Re: Inflation 2021/2022 and your retirement plans

Post by fortunefavored »

I early-retired this year. I still get 60 eggs for $10. 2 gallons of milk for similarly cheap amounts. Chicken and pork have gone up a hair. I don't eat beef.

The only personal inflation I've observed is packaged/processed foods so Proctor & Gamble can announce all time record profits. Doesn't seem like "real" inflation to me - merely pricing power to make more money. I rarely buy any of those products.

I am dubious of long term inflation. [OT comment removed by admin LadyGeek]

So I guess I'm doing nothing really. The main impact has been giving up on bonds returning any post-inflation returns and shifting more to Stable Value funds and holding more cash.
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