What Inflation Rate Should You Use To Model Out Your Retirement Plan? It's Higher Than You Think!
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- Опубліковано 21 кві 2024
- In this video, I discuss the inflation rate from 1914 through March of 2024. I also discuss the inflation rate over a subset of this timeframe, specifically, my lifetime. I cover the minimum, median, average, and maximum inflation rates over these periods.
Ultimately, I am looking for input from you as to the rates you are using in your retirement plan for optimistic, average, and pessimistic scenarios.
Disclaimer: Nothing contained in this video should be construed as Financial, Investment, or Retirement Advice. This is just a discussion regarding what I am thinking about. I have no expertise or formal training on this topic. Please seek out qualified investment / retirement planning advice from a Certified Financial Planner (CFP) professional. Also note, I do not guarantee that the rates discussed here are accurate. This information was obtained doing a simple Internet search.
My New Retirement rate assumptions: general inflation 2.5 to 5, Social Security COLA 2.5 to .5, medical inflation 6-7. Extreme inflation is possible like after the shutdown but it doesn't seem to last too long. My optimistic rate of return on investments is only 5 percent. I want to make sure that we can make it if market returns are lousy for years to come. I would recommend making sure that your expenses are realistic.
@dancurran8977 Thanks so much for your feedback. I appreciate you sharing your assumptions. I feel good about my expenses. I have a very detailed budget that I track against. I am assuming a longevity of 28 years in retirement and in all but my pessimistic projections, I don't run out of money before end of life. With my pessimistic projections, I run out when I am in my mid-80s. Not a good place to be. I am also using a conservative rate of return on my investments.
Thanks again.
-S-
We use 3.3% in our modeling. We look at only Food & Energy since we own our home outright. We took the last 30 years of inflation averages for both Food & Energy and averaged them out. It's a bit bloated because we do eat more at home and we are using the entire food category which includes dining out... which is a big driver of food inflation. We would rather be a little high on average to ensure we are covered.
@OurRetireEarlyJourney Thanks for watching and taking the time to comment. Can I ask, did you average the inflation rate for food and energy rather than using the CPI so that you would remove the owner's equivalent rent portion of CPI (~60% impact) or did you do it for some other reason? And if you removed it from CPI, did you also discount home appreciation prices from your modeling for the value of your home appreciation going forward (i.e. reducing your net worth) to even out both sides of the equation?
@@retirementramblings There is sections on the Gov website for CPI that you can drill down into the individual categories. So we just drilled down into food overall and energy overall and grabbed all the annual data from those 2 sections and put them into google sheets to average them. Those are the biggest inflation impacts on us with the exception of insurances.